A trust is a legally-enforceable relationship in which one party, the grantor, gives another party, called the trustee, legal authority to manage property on behalf of the trust’s beneficiaries. The trust may be revocable or irrevocable, and the trustee can be an individual or a company. The benefits of a trust can include avoiding probate, maintaining privacy and preserving assets.

A trustee is responsible for managing the trust’s assets, which can be cash, real estate, life insurance policies and business interests. Some types of trust can also provide tax advantages, such as reducing estate and income taxes. However, the tax benefits of a trust can vary depending on state and individual circumstances.

The trustee has a duty to act in the best interest of the trust’s beneficiaries, and must follow a high standard of care to protect the assets and manage them prudently. The trustee must also avoid engaging in self-dealing and must not mingle trust assets with the trustee’s own personal assets. The trustee must also keep accurate records and report to the beneficiaries on a regular basis.

Before creating a trust, the grantor should work with a lawyer who is experienced in drafting trust documents. The attorney can review the grantor’s goals and recommend a trust document that will work for the specific situation. In addition, the attorney can assist with retitling assets (other than real estate) in the name of the trust. The grantor can also work with a financial advisor to help identify and value the assets.

Once the trust document is prepared, the grantor must transfer the assets into the name of the trust. This process is often referred to as “funding” the trust. The grantor can usually do this himself or herself, but it is a good idea to discuss the options with a trusted financial advisor or attorney. The grantor can also include in the trust document a clause to revoke the trust upon his or her death, if desired.

Finally, the grantor must name a beneficiary or beneficiaries of the trust. This can be as simple as naming children or spouses as recipients of the trust funds, or the grantor can set up the trust to benefit a wide range of individuals or institutions. In many cases, the trustee can be required to obtain the consent of the beneficiaries before selling trust assets or making other substantial decisions.

If the grantor wishes to avoid probate, he or she must ensure that all of his or her assets are transferred into the trust before death. Otherwise, the assets that have not been transferred to the trust will have to go through probate, undermining one of the primary advantages of a living trust. In some instances, it may be advisable to have a will that includes a “pour-over” provision that will automatically transfer the remaining assets into the trust after the grantor’s death. In addition, the grantor should consider a power of attorney for any assets held outside the trust, so that a trusted person has legal rights to handle those assets in the event of a medical emergency or other incapacity.