When you hear the term trust, you may think of a wealthy family living in a mansion with inherited wealth passing from generation to generation. While trusts are often associated with the affluent, they can benefit people from a wide range of economic backgrounds and provide a way to protect family relationships and assets. A trust is essentially an arrangement in which one person holds title to property, such as a house or investment portfolio, for the benefit of another. A trustee is charged with managing the trust and distributing its assets to beneficiaries according to the terms of the trust.

A trust can be either revocable or irrevocable. A revocable trust allows the grantor, or owner of the trust, to change its terms during his or her lifetime and can even dissolve the trust if needed. An irrevocable trust is permanent and can only be changed by a court after the grantor’s death, typically in accordance with the terms of a last will and testament.

Trusts can be used to avoid probate, which can be expensive and public, as well as to mitigate estate and income taxes. If you decide to use a trust, a lawyer or financial professional can advise you as to what kind of trust might best meet your needs. They can also ensure that the trust documents are created properly so they achieve your goals and will hold up in court if challenged.

Before a trust can be effective, you must transfer your assets into it. This is typically a simple process. With a real estate trust, for example, you will sign a deed transferring ownership of the property to the trust. Other assets can be transferred by changing the name of the account on a savings or checking account, certificates of deposit, insurance policies, investments and other financial instruments. In addition, you should also change the beneficiary on any life insurance policies or retirement accounts.

Upon the grantor’s death, the trustee must distribute the trust assets to beneficiaries, who can be individuals or organizations, such as charities. This can be done by transferring the titled assets to the beneficiaries, or by selling them and then writing each beneficiary a check or giving them cash. If the trustee is unable or unwilling to do this, a judge can appoint an administrator of the trust estate.

There are costs associated with trusts, such as hiring a trustee and paying for title transfer fees, but these costs are less than those of a probate proceeding. However, if you are unsure whether a trust is appropriate for your situation, you should consult with an estate planning attorney or financial professional to obtain expert advice. They can also review the existing documents in your portfolio to determine if a trust is needed and, if so, what type of trust might best serve your needs.