What is a trust?

A trust is is arrangement where someone (the "settlor" or "grantor") transfers legal ownership of property to someone else (the "trustee") to hold and manage for the benefit of a third party (the "beneficiary"). There can be one or more settlors, trustees or beneficiaries in any trust. A trust can be set up during the settlor's lifetime, which is called an inter vivos or living trust. A trust can also be set up in someone's will which means that it will not be created until the person dies. That's called a testamentary trust.

Trusts are a very flexible option for estate planning because there are so many different ways they can be utilized to achieve planning objectives. Many people use trusts to avoid an eighteen-year-old recipient of an inheritance from having access to that money immediately. Instead, a trust can set that money aside for the beneficiary until a certain age, such as twenty-five. Depending on the terms of the trust, that money can be used before the beneficiary is twenty-five, but perhaps only for their health, education, maintenance or support (as opposed to luxury vacations or sports cars). Similarly, trusts can also be used to protect the inheritance of someone that has not demonstrated good money management skills, or even someone that has struggled with substance abuse issues in the past. 

In a living trust arrangement, the settlor(s) can also be the initial trustee(s) and the initial beneficiary(ies). When this type of trust is created and properly funded, it can allow for an easier administration of the assets after death as opposed to those assets being part of the "probate estate" which is administered through a probate court proceeding. It may also allow for continuity of management in the case of incapacity.

There are many different types of trusts. Some of the more common types of trusts include:

• Special/Supplemental Needs Trusts allow assets to be set aside for the benefit of a disabled person without disqualifying him or her from goverment benefit programs that have income and asset limits. These trusts can be set up by the disabled person or by someone else. 
• Pet Trusts allow pet owners to make sure that their furry family members are taken care of after death.
• Medicaid Asset Protection Trusts help protect assets from having to be spent down before qualifying for Medicaid coverage for long-term nursing care.