A trust is a legal agreement where a trustee holds legal title to property for the benefit of another party, the beneficiary. It is created when the grantor (or settlor) gives money or property to the trustee. The trustee has a fiduciary obligation to act on behalf of the beneficiary.
There are different classifications of trusts. Living (or intervivos) trusts are created during the life or upon the death of the grantor. Testamentary trusts are formed by instructions in a will. A revocable trust is one that can be changed or ended by the grantor at any time. An irrevocable trust is one that all control over the trust assets is relinquished by the grantor.
You will have to make several decisions when forming a trust. Some of these decisions include: who your beneficiaries will be and how and when they should receive the property; who your trustee is and at least one successor trustee; and how much discretion you give to the trustee (trustee right to decide when and how much money to be distributed to a beneficiary or group of beneficiaries).
Placing assets in a trust avoids probate of trust assets. Avoiding probate also keeps your financial asset information private and out of the public record. A living trust can serve as an alternative to having the court assign a guardian to take over your financial affairs.
There are many reasons to form a trust including: reduce the size of the taxable estate (only property in an irrevocable trust is excluded from the estate while property in a revocable living trust is included in a grantor’s taxable estate); keep financial affairs private; provide income to a surviving spouse, minor children and/or those unable to manage money; relieve beneficiaries of trust property management; keep trust property out of surviving spouse’s estate while allowing spouse to receive income.
Trusts allow an estate to remain private forever, i.e. out of the public record. Wills, on the other hand, will be recorded publicly upon the death of the grantor. Persons using trusts should still utilize a will to cover all property, in case a trust does not, and to achieve goals a trust cannot (see Wills). Likewise, a trust minimizes probate and the associated costs, which can be burdensome in some states. It will also avoid probating your estate in states other than your home state, where you own real estate.