A trust is an agreement that establishes how you wish to transfer assets, usually property or money, from your life to those who will receive it after your death. There are different types of trusts, which serve different purposes. These include avoiding probate, managing tax consequences and protecting assets from certain risks. The type of trust you choose depends on your situation and your goals. A legal professional can help you understand the options and choose the right one for you.

A revocable trust can be changed or terminated by the grantor at any time, while an irrevocable trust can only be amended or changed by a court order or the written consent of beneficiaries. This difference results in varying levels of control, distinct tax implications and different ways to transfer assets.

Trusts are generally used for those who have significant assets and want to ensure that their wishes are carried out as they intend. However, even individuals of more modest means may benefit from the use of a trust, depending on their needs and concerns. For example, a family with a special needs child may wish to set up a trust to manage their finances and provide for them in the future, as well as ensure that they are not exposed to inappropriate risk or taken advantage of by others. A trust can also ensure that a beneficiary has access to benefits they would not otherwise have, such as government assistance programs or private disability insurance.

The most common form of trust is a living trust, which is established while the individual is still alive. This trust can hold a variety of assets, such as cash, stocks and bonds, real estate or personal property. The creator of the trust, known as the grantor or settlor, names a trustee to oversee the assets and an executor to administer the trust upon death. The trustee can be a bank or financial institution, and the beneficiary can be a person or entity such as a charity or school.

While the primary advantage of a living trust is its ability to avoid probate, it only works if the assets are transferred into the trust prior to the death of the individual. For this reason, if you are considering using a trust in your planning, it is important to discuss this with your attorney and your financial advisors.

A trust can be used to protect assets from creditors, state income taxes and/or generation-skipping tax. It can also be a tool to keep wealth away from family members who might be tempted to sell or spend their inheritance. This can be especially useful if you are concerned that your loved ones might suffer from a mental health issue or addiction and could misuse an inheritance. A trust can specify how and when the funds will be distributed, which is a valuable protection against unwise spending or financial mismanagement.