What is a trust?

A trust is a financial and legal arrangement that transfers ownership of assets from the grantor into the trust for later distribution to beneficiaries. It can be important for estate planning and asset protection.

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What is a trust and how does it work?

A trust is a legal structure that you can set up to hold assets. This can have many far-reaching benefits when it comes to estate planning. Every trust has a document that outlines the terms and conditions that must be followed governing the management and distribution of assets. In addition, since the assets within a trust often no longer technically belong to you, trusts can help protect assets and wealth by reducing taxes and avoiding delays in the probate process.


Trust vs. will

Both trusts and wills are estate planning tools that can outline your wishes about what money and assets go to which beneficiaries, but they have distinct characteristics. A will is usually a fairly basic document that, for many, doesn’t need the input of a lawyer. Trusts can be more complicated but also have more benefits. They can help you avoid probate, which is a court-supervised process whereby your assets are distributed to debtors and creditors before your beneficiaries. It also provides a higher level of privacy, since wills are public record. Other benefits of a trust include greater protection of assets and control over distribution. For example, you can instruct a beneficiary to receive a portion of their inheritance every year for 10 years. That can’t be done with a will.


Roles in a trust

Whenever you set up a trust, there are three roles that must be considered:

Grantor/trustor – This is the person who creates the trust and transfers assets into it. They outline the terms and conditions of the trust in a legal document, known as the trust agreement or trust deed.

Trustee – This party is responsible for managing and administering the trust according to the instructions provided by the trustor. They are usually paid and have a legal duty to act in the best interests of the beneficiaries. Trusts can have individual trustees or corporate entities serving in this role.

BeneficiaryBeneficiaries are the individuals or entities who will ultimately benefit from the trust. They receive income or other assets or benefits as specified in the trust agreement. Beneficiaries can include family members, charities, or even the trustor themselves.


Who needs a trust?

Many think that trusts are solely for the rich, but they are becoming far more common in estate planning for all levels of wealth. Think of it this way: With a little extra effort now, you can reduce confusion, delays, and complications for your family after you pass away. For many, that is well worth the small additional cost of setting up a trust.

Related: At what net worth do I need a trust?


Types of trusts

Trusts can be used for many very specific situations, requiring different types of trusts. For example, there are charitable trusts, bare trusts, and generation-skipping trusts, which pass on assets to grandchildren or other descendants without those assets being subject to taxation. Commonly, though, most trusts fall into a few different buckets. Here are some of the most important:

Irrevocable vs. revocable trusts

Most trusts are revocable, which means the grantor can change the details within it at any time, updating assets, distributions, and even adding or removing beneficiaries as needed. Irrevocable trusts are much more difficult to change after you set them up initially. The trade-off is that you can functionally remove the assets within an irrevocable trust from your ownership, which can help tremendously with estate taxes for high-net-worth families or as protection from debts or risk of lawsuits. Read more about the difference between revocable and irrevocable trusts.


Special-needs trusts

If you have family members with special needs, there are trusts designed to help you better provide for them, both while you are alive and after you’ve passed away. A major benefit of special-needs and qualified-disability trusts is that you can provide this financial assistance without affecting their eligibility for government support benefits. Learn more about financial planning for families with disabilities.


Creating a trust

Creating a trust is an involved process, but it doesn’t have to be overly complicated. Working with an estate planning attorney can ensure that the trust complies with relevant laws, and helps you make informed decisions based on your unique circumstances. Remember that the specifics of creating a trust can vary based on jurisdiction and individual situations, so seeking professional advice is highly recommended.

Define your objectives

Clearly outline your goals for creating the trust. Whether it's wealth preservation, estate planning, or providing for loved ones, understanding your objectives will guide the entire process.


Work with financial professionals and attorneys

Engage a legal professional such as an estate planning attorney, to select the type of trust that aligns with your goals and financial situation and to draft the trust agreement. This document outlines the terms and conditions of the trust, including the distribution of assets.


Appoint a trustee and designate beneficiaries

Now it’s time to determine who the beneficiaries of the trust will be. Those individuals or entities will receive the trust's assets according to your instructions. Make sure to communicate with the beneficiaries so they know and understand the relevant details. Then select someone trustworthy to manage and administer the trust. Remember, the trustee has a fiduciary duty to act in the best interests of the beneficiaries.


Fund the trust

Transfer the assets you want into the trust. This step involves changing the ownership of assets from your name to the name of the trust and ensures that the trust functions as intended. It is often called a trust fund.


Review and update as needed

Periodically review the trust documents to ensure they align with your current circumstances. Life events such as marriages, births, or significant financial changes may necessitate updates.

Trust FAQs

Not really. These two terms are sometimes used interchangeably, but trust is a general term that includes many types and different uses. Trust funds generally refer to a specific type of trust that pays beneficiaries over a long period. Learn more about trust funds.

Technically, the trust owns the property. However, if it is a revocable trust, then funds and assets within it can still be considered owned by the grantor for legal and tax purposes.

When the trustee of a trust dies, the trust doesn't necessarily terminate, but there are specific steps that may need to be taken. Sometimes a trust defines a successor trustee. In other cases, the grantor may have to select someone new.

Placing a home in a trust is a common estate planning strategy that offers various benefits, including reducing taxes, avoiding the probate process, and maintaining a family’s privacy.


Create a trust as part of your overall estate planning strategy.

An attorney can help you create a plan. Our financial professionals can answer questions and put financial tools in place to help you protect and share your wealth.

Neither New York Life Insurance Company (NY, NY), nor its agents, provides tax, legal, or accounting advice. Please consult your own professionals before making any decisions.