A trust is a legal structure that can hold and manage assets for a person, family or business. It may also be used for tax purposes. Trusts come in many forms. They can hold anything from cash and investments to real estate and even life insurance policies. A trust can be irrevocable or revocable and can have one or more trustees.

A common type of trust is the living or testamentary trust, which is established during a person’s lifetime. It is typically named in their will and becomes irrevocable upon their death. This type of trust allows a person to avoid probate, keep their financial affairs private and reduce taxes. It can also be set up to help beneficiaries avoid lawsuits and protect their assets from creditors.

Generally, trusts are used to help beneficiaries maintain their eligibility for government benefits like Medicaid and Social Security. This type of trust can be set up with a special needs provision or with specific instructions about how and when to distribute assets. These types of trusts can also be used to address concerns about beneficiaries spending their inheritances irresponsibly.

People use trusts to manage everything from personal finances to retirement accounts, and they can be used for charitable purposes as well. They are an important part of an estate plan and can save money on taxes by avoiding probate, keeping financial affairs private and reducing the amount that is subject to state and federal income taxes. It is a good idea to consult with an estate planning attorney about your options.

There are different types of trusts, and you need to consider what is best for your situation. The basic way that a trust works is that a sum of money, called “principal,” is put into a bank or investment account and controlled by a trustee. The trustee earns interest on the principal, which is called “income.” The trust document specifies how much and when the principal and income are to be distributed to beneficiaries.

A trust can own a wide variety of assets, including cash and investments, real estate, vehicles, furniture, artwork and writings. It can also hold payouts from a life insurance policy and be the beneficiary of a retirement account. A trust can be revocable or irrevocable and can have one or more trustees. The trustees must be competent and have the ability to manage the assets of the trust. Depending on the size and complexity of your estate, it is a good idea to have an experienced estate planning attorney draft or review the trust documents. You can also find online estate planning software that provides guidance on creating a trust. The information provided in this article is not intended as investment, tax or legal advice. Please contact a qualified professional for assistance with your specific questions and concerns.