Why Would Someone Want to Use a Trust?

A trust is a legal arrangement where an individual, the grantor, transfers assets to a third party, the trustee. The trustee holds and manages these assets for the benefit of another party, the beneficiary. The grantor creates a trust document with an attorney, which outlines how the assets should be managed and distributed, giving the trustee instructions to act on the beneficiary’s behalf.

This fiduciary relationship means the trustee has a legal duty to act in the beneficiaries’ best interests per the grantor’s terms. This structure allows for precise control over wealth, dictating when and to whom distributions are made. Trusts are versatile financial planning tools that can be adapted to many personal and financial situations.

Bypassing the Probate Court Process

A primary reason for establishing a trust is to bypass the probate court process. Probate is the court-supervised procedure for validating a will, paying debts, and distributing assets. This process is a matter of public record, meaning the details of the estate, including asset values and beneficiary identities, are accessible to anyone, which is a privacy concern for many families.

The probate process can also be time-consuming and expensive, sometimes taking months or even years to complete, especially if the estate is complex. During this period, assets may be frozen and inaccessible to beneficiaries. The associated legal, executor, and court fees can significantly reduce the total value of the estate passed on to its intended recipients.

A trust avoids these drawbacks. When assets are retitled into the name of a trust, they are no longer part of the grantor’s personal estate upon death and fall outside the probate court’s jurisdiction. This allows for a private and efficient transfer of wealth.

Upon the grantor’s death, the successor trustee manages and distributes the assets according to the trust document without court intervention. The successor trustee can settle the estate’s affairs and transfer assets to the beneficiaries much more quickly than through probate. This process preserves the family’s privacy and the estate’s value.

Planning for Personal Incapacity

A trust can also manage a person’s financial affairs if they become incapacitated. Unlike a will, which is only effective after death, a living trust provides a framework for managing assets if the grantor is unable to do so. This pre-planning ensures financial continuity without court involvement.

Without a trust, a grantor’s incapacity could require family members to petition a court to establish a guardianship or conservatorship. This court process can be slow, public, and expensive. The court would then oversee the appointed guardian’s decisions, requiring burdensome reports and accountings.

A revocable living trust avoids this court-supervised process. The trust document defines what constitutes incapacity and names a successor trustee to take over management of the trust’s assets. This designated person or institution can immediately begin paying bills and handling all financial matters for the grantor’s benefit.

This transition of authority occurs privately, without the delay or expense of a court proceeding. This gives the grantor peace of mind, knowing their financial affairs will be handled by a person or entity they have personally chosen and trust to follow their instructions.

Providing for Beneficiaries with Specific Needs

Trusts allow a grantor to set specific terms for how and when funds are distributed, which is useful when leaving assets to individuals who may not be equipped to manage a lump-sum inheritance. This structure ensures the assets provide long-term support.

For Minors

A trust is necessary when leaving property to minors, as children cannot legally own significant assets directly. A trustee manages the inherited assets on their behalf. The grantor can specify in the trust document the age at which the beneficiary will receive control of the funds, or stagger distributions over time to prevent a young adult from receiving a large inheritance before they are financially mature.

For Beneficiaries Who Are Financially Irresponsible

Trusts can also protect inheritances for beneficiaries considered financially irresponsible. Instead of an outright distribution, the trust can provide a steady income stream or make payments directly for specific expenses like housing and education. This arrangement, which includes a spendthrift provision, also shields the trust assets from the beneficiary’s potential creditors.

For Individuals with Disabilities

A Special Needs Trust (SNT) is designed to hold assets for a person with a disability without jeopardizing their eligibility for means-tested government benefits like Supplemental Security Income (SSI) and Medicaid. These programs have strict asset limits, and a direct inheritance would disqualify the recipient. Because the assets in an SNT are managed by the trustee, they are not counted as a resource of the beneficiary, allowing the trustee to pay for supplemental needs and enhance the beneficiary’s quality of life.

Protecting Assets from Taxes and Creditors

Certain trusts can preserve an estate’s value by shielding assets from taxes and creditors. This protection is achieved with an irrevocable trust, where the grantor relinquishes ownership and control of the assets transferred into it. Unlike a revocable trust, the assets are no longer considered the grantor’s own.

Once assets are in a properly structured irrevocable trust, they are legally separated from the grantor’s personal estate. This provides two advantages, the first being estate tax reduction. By moving assets out of their personal estate, the grantor reduces the value of their taxable estate, which can minimize or eliminate federal or state estate taxes. With the federal estate tax exemption scheduled to decrease significantly in 2026, this planning is important for estates that might exceed the future, lower amount.

The second benefit is protection from creditors. Because the assets are no longer legally owned by the grantor, they are generally shielded from the grantor’s future personal creditors or legal judgments. This is valuable for individuals in professions with high liability risk, such as physicians or business owners. The trust must be established and funded well before any financial difficulties arise, as transfers made to defraud existing creditors can be reversed by courts.

Navigating Complex Family and Asset Scenarios

Trusts offer flexible solutions for complex family dynamics and unique assets that a simple will cannot. This can prevent disputes and ensure the grantor’s intentions are met, particularly in non-traditional family structures.

One common application is planning for blended families. An individual who has remarried and has children from a previous marriage may want to provide for their current spouse while ensuring the ultimate inheritance passes to their children. A Qualified Terminable Interest Property (QTIP) trust is designed for this, providing the surviving spouse with income for life without the power to sell assets or change the final beneficiaries. Upon the surviving spouse’s death, the remaining assets are distributed to the children from the first marriage.

Trusts are also useful for managing indivisible assets, such as a family business or a vacation cabin. Leaving such an asset directly to multiple heirs can lead to conflict over management and expenses. A trust centralizes control under a trustee who manages the property according to rules in the trust document, which can include procedures for scheduling use, handling costs, or establishing a process for one heir to buy out another’s interest. This structure helps prevent disagreements that could otherwise damage family relationships.