Who Needs a Trust? Key Reasons to Create One

A trust is a legal arrangement where one party, the grantor, gives a second party, the trustee, the right to hold assets for a third party, the beneficiary. This structure is a tool for managing and transferring wealth, allowing for control over how and when assets are distributed. People establish trusts for many reasons, including providing for family members and ensuring the care of a loved one. An attorney typically drafts the trust document based on the grantor’s wishes, and the grantor selects a trustee to administer the assets according to the trust’s terms.

Key Trust Classifications

A fundamental distinction in trusts is between revocable and irrevocable structures. A revocable trust, often called a living trust, allows the grantor to change or terminate the trust at any point during their lifetime, offering flexibility. Think of it as a document you can rewrite as your circumstances or wishes change. Because the grantor retains control, the assets within a revocable trust are still considered part of their estate for tax purposes.

In contrast, an irrevocable trust generally cannot be altered or canceled by the grantor once it is created without the consent of the beneficiaries. This lack of flexibility is a trade-off for benefits such as stronger protection against creditors and the potential to reduce estate taxes by removing assets from the grantor’s taxable estate. This permanence makes irrevocable trusts a tool for long-term asset protection and tax planning.

Another classification is based on when the trust is created. A living trust, or inter vivos trust, is established and funded while the grantor is alive, allowing the grantor to manage the assets. The primary advantage of a living trust is its ability to bypass the court-supervised probate process. A testamentary trust is created through a will and only comes into existence after the grantor has passed away and the will has gone through probate.

Primary Motivations for Creating a Trust

Avoiding Probate

One of the most common reasons people create a living trust is to avoid probate. Probate is the court-supervised legal process of validating a will, paying debts, and distributing a deceased person’s assets. This process can be lengthy, often taking months or years, and can be expensive, with court and attorney fees reducing the estate’s value. Furthermore, probate proceedings are public record, making the details of your will and assets accessible to anyone.

Assets held within a living trust are not considered part of the probate estate. Upon the grantor’s death, the successor trustee simply follows the instructions in the trust document to distribute the assets directly to the named beneficiaries, bypassing the need for court involvement.

Providing for Minor Children or Young Adults

Leaving a significant inheritance directly to a minor child is legally problematic, as they cannot own property outright, often necessitating a court-appointed guardianship. Many people also feel an 18-year-old may not have the financial maturity to handle a large sum of money. A trust allows you to appoint a trustee to manage the inherited assets on the child’s behalf.

The trust document can contain specific instructions for how the funds should be used, such as for education or healthcare. The grantor can also dictate that the beneficiary receives the assets at a certain age or in staggered installments to ensure the inheritance is used wisely.

Caring for an Individual with Special Needs

For families with a child or adult with a disability, a direct inheritance can be detrimental. It could disqualify them from receiving essential needs-based government benefits, such as Supplemental Security Income (SSI) and Medicaid. These programs have strict limits on the amount of assets an individual can own, and a sudden inheritance could push them over the eligibility threshold.

A Special Needs Trust (SNT) is specifically designed to hold assets for the benefit of a person with a disability without jeopardizing their eligibility for public assistance. The funds in the SNT are managed by a trustee and are used to pay for supplemental needs not covered by government benefits, like specialized medical equipment, therapy, or education.

Maintaining Privacy in Estate Settlement

When a person’s estate is settled through a will, the document is filed with the probate court and becomes a public record. This means that anyone can access information about the deceased’s assets, debts, and the identity of their beneficiaries. For many families, this lack of privacy is a major concern.

A living trust is a private document. Since the assets held in the trust are not subject to probate, the terms of the trust and the details of its holdings remain confidential. This privacy protects beneficiaries from unwanted public scrutiny and allows the family to settle its affairs without outside interference.

Controlling Assets for Blended Families or Specific Concerns

Blended families, where one or both partners have children from a previous relationship, present unique estate planning challenges. A trust can be an effective tool to ensure that both the surviving spouse and the children from a prior marriage are provided for according to the grantor’s wishes. For example, a Qualified Terminable Interest Property (QTIP) trust can provide the surviving spouse with income from the trust assets for their lifetime, while preserving the principal for the grantor’s children.

Trusts also offer solutions for beneficiaries who may not be equipped to manage their inheritance responsibly. A “spendthrift” provision can be included in a trust to protect the assets from a beneficiary’s creditors or from their own poor financial decisions.

Advanced Trust Strategies for Wealth Preservation

Minimizing Estate Taxes

For individuals with substantial wealth, a concern is minimizing the impact of federal estate taxes. In 2025, the federal estate tax exemption is $13.99 million per individual. This high exemption is temporary and set to expire at the end of 2025, at which point it is scheduled to revert to a pre-2018 level of around $5 million, adjusted for inflation, unless Congress passes new legislation. For estates that exceed the applicable exemption, certain types of irrevocable trusts are designed to reduce or eliminate this tax liability.

One common strategy is the Irrevocable Life Insurance Trust (ILIT). An ILIT is created to be the owner and beneficiary of a life insurance policy. The grantor makes gifts to the trust, which the trustee then uses to pay the policy premiums. Upon the grantor’s death, the life insurance proceeds are paid directly to the trust, not to the estate, and are therefore not subject to estate taxes.

Asset Protection

An irrevocable trust can be a tool for shielding assets from future potential creditors or lawsuits. When a grantor transfers assets into a properly structured irrevocable trust, they relinquish ownership and control of those assets. Because the assets are no longer legally theirs, they are generally protected from claims that may arise against the grantor in the future.

This strategy must be implemented proactively and cannot be used to defraud existing creditors. A court can overturn a trust if it is determined to have been created to avoid a known or impending liability. For professionals in high-liability fields, an asset protection trust can provide a layer of security.

Essential Differences Between a Trust and a Will

When it Takes Effect

A primary distinction between a will and a trust lies in when they become legally effective. A will is a testamentary document, meaning it only takes effect after the death of the person who created it and after it has been validated by a probate court. In contrast, a living trust becomes effective immediately upon its creation and funding, allowing the grantor to manage assets during their lifetime.

Probate Court Involvement

The involvement of the probate court is a significant point of divergence. A will must go through the probate process, where a court oversees the validation of the will and the distribution of the estate’s assets. Assets properly titled in the name of a living trust completely bypass this process. The successor trustee is empowered to distribute the trust assets directly to the beneficiaries according to the trust’s terms, without the need for court approval.

Management of Incapacity

A living trust offers an advantage in planning for the possibility of the grantor’s incapacity. The trust document can include provisions that name a successor trustee to take over the management of the trust’s assets if the grantor becomes unable to do so. This creates a seamless transition of financial management without the need for court intervention, which would be necessary if a person with only a will becomes incapacitated.

Privacy

The level of privacy afforded by each document is a differentiator. A will, once submitted to the probate court, becomes a public record. This means that the details of the estate, including the assets, their value, and who inherits them, are open to public inspection. A trust is a private document, so its terms are not filed with any court or public agency, and the details of the estate plan remain confidential.

Cost and Complexity

Creating a will is simpler and less expensive upfront than establishing a trust. A trust requires more initial work, including the drafting of the trust agreement and the process of transferring, or “funding,” assets into the trust’s name. While a trust has higher initial costs, it can result in significant savings in the long run. By avoiding the costs associated with the probate process, a trust can ultimately preserve more of the estate’s value for the beneficiaries.