Trusts

A trust is a legal arrangement in which someone agrees to hold and manage property for the benefit of another. With a trust, three parties are involved: the one who transfers the property to the trust (called the grantor), the one who has the responsibility for managing the property (the trustee), and the one for whose benefit the trust is established (the beneficiary).

Because of the historical development of trusts and the state law rules that govern them, the courts are much more likely to give effect to the transfer of broad powers to a trustee than they would to an executor. This means that trusts can be extremely flexible estate planning tools. Unlike your will, which becomes a public document when admitted to probate, trust arrangements even those that are closely tied into an asset transfer from a will can be kept from the public eye.

Here, we discuss using trusts to benefit someone without transferring to him or her the full control over the trust assets. (Tax-minimizing techniques using trusts are discussed elsewhere.) You might want to consider using a trust to:

In summary, trusts can offer the flexibility of withholding full property ownership in instances where you want to safeguard the ultimate distribution of the property to another, or where you want to temporarily withhold such full ownership rights. They also can be used to attempt to influence other's behavior, but such uses are not always enforceable.

In any case, don't forget that trust arrangements cost money: money for an attorney to draft them, and yearly fiduciary fees to the trustee for managing the trust property. Be sure that you have good reasons to incur these additional costs before you decide to go the trust route.