A trust is a legal contract that plans for the distribution of an individual's assets upon their death. The document states that a trustee will hold all property until a given point in time. Unlike a will, a trust won't be subject to probate. This ensures that the estate's closing is quicker, there are no court fees, and results in reduced estate taxes. 

A Trust's Purpose

Setting up a legally binding trust provides definite advantages that guarantee your wishes are honored once you are gone. It is also helpful in later years when you may need medical care. Receiving medical assistance is often influenced by asset ownership so proper designation is vital. Some of the reasons people choose to set up a trust include:

• Managing, protecting, and controlling—if the beneficiaries are too young, aren't responsible, or are likely to squander their inheritance, a trust allows for control. Additionally, a trust agreement manages how much, often, and the conditions of your wealth distribution. 
• An airtight trust document promises that no one but the beneficiaries and trustee will see the contents of your estate. With a will, it must go through probate, so it is a public document. 
• Wills are susceptible to court challenges called compulsory succession, leaving a door open for changes. Trusts, when properly done, are airtight. 
• Certain tax exemptions are used to shelter trust funds.
• Lower-income beneficiaries will be taxed at a lower rate than someone with a large estate. Saving on taxes is another benefit of a trust.
• Disability plan payments often get reduced due to a beneficiary's means test. Under a trust, the funds or assets are held and don't count as part of the means test. 

Is A Trust Right For Me?

Just like any other legal arrangement, a trust isn't suitable for everyone. Consider the following stipulations:

• Assets should equal $200k or more
• Only appropriate for home or property owners
• A trust lends control over how and when funds are available for distribution. For example, a lump sum gets paid at graduation or marriage to an acceptable mate, etc.
• Provides a quicker turnaround for loved ones because no probate is necessary
• If a taxable estate is involved
• The trust will keep the property information and beneficiaries private

Types of Trusts 

Due to the nature of estate law, various types of trusts exist. Understanding the purpose of each one will help determine which one is best suited for your particular situation.

• A revocable or living trust allows control over the assets during the lifetime of the grantor. At the time of death, a trustee takes over. The drawback is that the estate is still subject to taxes, and creditors can access it while the grantor is still alive. The revocable trust can be dissolved during the life of the grantor and becomes irrevocable when death occurs. 
• Once an irrevocable trust becomes established, the grantor is no longer the owner. No changes are allowed, but the estate stays protected from taxes and creditors. This type of trust also protects the assets in the case of a legal judgment.
• A bypass or 'AB' trust is designed for married couples and includes two parts. The 'A' part is called the marital trust and is revocable. It protects a portion of the estate by moving the property into the 'B' section, an irrevocable trust. The surviving spouse has access to all funds in both trusts but doesn't own the trust's 'B' part. This avoids taxes and creditors' ability to get to the estate. The 'B' trust has a tax exemption based on marital status. 
• A testamentary trust involves the estate being part of a will and then transferred to a trust at the time of death. It does not avoid probate and is subject to taxes.
• Specialty trusts include irrevocable life insurance trust (ILIT), Qualified Terminable Interest Property (QTIP) trust, Charitable lead trust, Charitable remainder trust, and the Generation-skipping trust. Wealth management for the use of these trusts requires certain circumstances so seek professional advice before moving forward. 

Related: Special Needs Trusts: What You Need To Know

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