A trust is a legal entity that manages and holds assets on behalf of beneficiaries who are named in the trust document. Trusts can play a key role in an estate plan, offering flexibility and control over the management and distribution of wealth. Trusts can be a helpful tool for families of any size, but may be especially beneficial for those with significant assets or a family history of incapacity.

A trustee is a person or institution who manages and distributes a trust’s assets according to the terms of a trust document. The trustee must follow the terms of the trust and take into account the best interests of the beneficiaries. A trustee can be a professional, such as an attorney or financial advisor, or someone familiar with your situation, such as a family member or trusted friend.

There are two basic types of trusts: a testamentary trust and a living trust. A testamentary trust is established through a will that transfers property to the trust upon death. A living trust is created during a grantor’s lifetime when all or part of the grantor’s property is transferred into the trust. A living trust avoids probate by transferring the ownership of the assets to the trust rather than passing through the estate.

The main advantage of a trust is that it allows you to bypass the probate process, which can be time consuming and costly. By avoiding probate, a trust can help your beneficiaries access their inheritance sooner. In addition, trusts can offer several tax advantages. For example, a charitable trust can allow you to donate assets while retaining the ability to use them for your benefit during your life, and realize estate tax savings at death.

Another advantage of a trust is that you can specify conditions for the distribution of assets. For instance, you can create a trust that will only distribute funds to a beneficiary once they reach a certain age or once they have completed a particular educational or career goal. This can help prevent a beneficiary from misusing their inheritance or spending their entire inheritance at once.

Trusts can also provide protection from creditors and preserve a greater degree of privacy than a will. In some states, a will is a public record, but trusts can remain private and can shield your estate from unnecessary scrutiny.

As you consider whether a trust is appropriate for your situation, we encourage you to talk with an experienced estate planning attorney and your Schwab professionals. We also encourage you to read our estate-planning fact sheets. These fact sheets are intended to be general and should not be construed as legal or tax advice. Trusts are complex, and there are many factors to consider. You should consult an attorney or other qualified professional to determine if a trust is appropriate for your circumstances, and to draft the proper documents. The information provided is based on our interpretation of the law and should not be construed as a guarantee of future results.