Despite these dated images, trusts aren’t just for the wealthy. Having one—or more—in your estate plan can make sense, regardless of how much money or property you have. According to a recent article from Fortune, “Understanding trusts: An important estate planning tool for everyday Americans,” estate planning is less about dying and more about living. Most families create estate plans to take care of their families. This approach can help achieve this goal by providing privacy, asset protection and avoiding probate.

A trust is a legal document creating a three-way relationship between three different parties: the trust, the trustee and the beneficiaries. The trust is the legal entity holding title to the assets in the trust. The trustee is the trust’s decision maker, and the beneficiaries receive assets from the trust.

A grantor creates the entity and directs how assets will be used during the grantor’s lifetime and how those assets should pass to the beneficiaries when the grantor dies. Another reason to use this tool: assets pass directly to beneficiaries and don’t go through probate.

While the word “trust” may embody the idea of attorneys’ offices and courtrooms, they are legal and financial arrangements that most people use in their day-to-day finances. Business entities like LLC (Limited Liability Companies) have the same three-way relationship: the president of the LLC, the decision maker; the LLC itself, which owns the assets; and LLC members, who are like beneficiaries of a trust.

Your estate planning attorney will know which type of approach is right for your situation. However, they are created similarly. The grantor and their attorney agree about what kind of trust is needed, and the entity is created. The language specifies how the assets should be managed and passed to beneficiaries. The grantor places assets inside the trust, removing them from the grantor’s ownership and estate. The grantor names a trustee who makes the day-to-day decisions for the trust, its assets and its beneficiaries. When the grantor dies, the trustee directs the assets' distribution according to the trust's terms.

Trusts offer a clear road map for your wishes, with many benefits when compared to a last will and testament.

• They can help avoid probate, the court-supervised process of validating a will.
• They can allow the grantor to retain control of the assets while they are living. They can also direct your trustee to manage the trust, if you become incapacitated.
• By removing assets from your estate, this tool can minimize estate and income taxes for beneficiaries and preserve more wealth.
• They can be used to spell out guardianship nominations for young children and create plans to help children inherit responsibly.
• Some can be used to achieve specific philanthropic goals, whether leaving a small amount to a local organization or making a large grant to a national foundation.
• They protect assets from legal action, creditors and certain life-altering events like divorce.
• Since the trust owns assets, the grantor’s and beneficiary’s names are not on the public record, preserving privacy.

Speak with your estate planning attorney about the appropriate approach for your situation and how to align this with your overall estate planning goals.

Reference: Fortune (June 9, 2023) “Understanding trusts: An important estate planning tool for everyday Americans”