A trust is a legal device similar to a will that can be used to shield your assets. Like a will, a trust allows you to assign beneficiaries for your estate. Your property is transferred into the trust, which takes ownership of that property for a variable period of time (up to and including the remainder of your life). With your property transferred into the trust, the trust becomes a separate entity which is managed in accordance with the stipulations you created as you formed the trust. While you no longer own the property you've transferred, you are allowed to benefit from what the trust can produce. The trust can pay you or your surviving spouse an income, for example as a result of investment activities. Upon your death, the trust can be designed to dissolve itself and disburse the property to beneficiaries or to create a lifetime income and then pass the assets to other beneficiaries. Disbursement of trust-shielded monies to beneficiaries does not require approval from probate court, as do disbursements described in wills.
There are two principal purposes to trusts. One is to shield your assets prior to death and the second is to shield your assets after death. A trust created during your lifetime can be utilized to shield your assets from claimants and/or to simplify the probate process. A trust created during your lifetime, upon your death, becomes irrevocable and not subject to probate. In some places the process of probate is onerous and expensive and the creation of a trust during your lifetime simplifies and speeds the distribution of income and assets to those beneficiaries named in the trust.
Trusts require the coordination of multiple social roles in order to function. Trusts are created by a Grantor or Settler; the person who transferred their assets into the trust, setting it in motion. A Trustee must be appointed who will take legal responsibility for managing the trust. Trustees may be people or financial institutions. Trustees become legally obligated to see that the terms the Grantor established for the trust are upheld. Finally, the Beneficiary is the person (or persons) who the Grantor has decided shall benefit from the trust, in terms of ongoing income derived from trust investments, disbursement of money when the trust terminates, or both.
Trusts vary in terms of their revocability; whether or not they can be rescinded and the properties they shield reclaimed. Money that is put into a Revocable trust can be reclaimed by the grantor prior to death. Irrevocable trusts, on the other hand cannot be rescinded. Properties that are committed to irrevocable trusts cannot be recovered by Grantors. Irrevocable trusts offer protections that revocable trusts cannot which offset their permanence, however. While a revocable trust can shield assets from probate court, it cannot prevent the seizure of those assets by creditors such as nursing homes. Creditors cannot make claims upon assets placed into irrevocable trusts but may be able to make claim to the income if the income is directed to the grantor.
Unlike wills, trusts are not useful for everyone. Trusts have the most to offer people who have substantial property they need to protect (e.g., assets totaling more than $1,000,000, real estate holdings), people concerned with financial privacy or people who wish to avoid probate court. You should consult with an attorney who specializes in estate planning when considering whether a trust will benefit your unique situation.
If you have decided that it will be to your benefit to establish a trust, be sure to create that trust as soon as you can. The law requires that you be of sound mind and body and have no medical or emotional problems that might put your legal capability to enter into a binding agreement in question when you create trusts. If there is any question of your mental competence to create and fund your trust, your heirs may be able to contest the document and possibly have it overturned in court. Should you become debilitated and unable to manage your own affairs, you will not be able to create a trust that will be durable and able to hold up in court if it is challenged.