What’s a Trust? A Complete Guide to Trusts in Estate Planning

When people begin estate planning, one of the most common questions they ask is, “What’s a trust?” Trusts are often mentioned alongside wills, powers of attorney, and probate, yet their purpose and function can be confusing at first.

A trust is a powerful legal tool that helps manage, protect, and distribute assets during life and after death. This guide explains what a trust is, how it works, the different types of trusts, and why trusts are widely used in modern estate planning.

What Is a Trust?

A trust is a legal arrangement in which one party holds and manages assets for the benefit of another. The trust is created through a legal document that outlines how assets should be managed and distributed.

There are three key roles involved in every trust:

• Grantor (or Settlor): The person who creates the trust and places assets into it
• Trustee: The person or institution responsible for managing the trust assets
• Beneficiary: The person or people who receive benefits from the trust

The trust document provides instructions that the trustee must follow, creating structure and clarity around asset management.

What Is the Purpose of a Trust?

Trusts are used to control how assets are handled, both during the grantor’s lifetime and after death.

Common purposes of trusts include:

• Managing assets during incapacity
• Avoiding probate
• Protecting beneficiaries
• Controlling when and how assets are distributed
• Preserving privacy
• Reducing legal disputes

Trusts allow for more detailed planning than a will alone, especially when family dynamics or financial situations are complex.

How Does a Trust Work?

A trust works by transferring ownership of assets from the grantor to the trust itself. The trustee then manages those assets according to the terms set out in the trust document.

Assets commonly placed into trusts include:

• Real estate
• Bank accounts
• Investment accounts
• Business interests
• Personal property

Once assets are properly transferred, the trustee becomes legally responsible for managing them for the benefit of the beneficiaries.

Trusts vs. Wills: What’s the Difference?

Although trusts and wills are both estate planning tools, they serve different purposes.

Key differences include:

• A will takes effect after death, while a trust can operate during life
• Trusts can avoid probate, while wills go through probate
• Trusts provide ongoing asset management, while wills distribute assets outright
• Trusts offer greater privacy than wills

Many estate plans use both documents together to provide comprehensive coverage.

The Main Types of Trusts Explained

Trusts come in many forms, each designed for specific planning goals.

Revocable Living Trust

A revocable living trust is one of the most commonly used estate planning trusts. It can be changed or revoked by the grantor during their lifetime.

Key features include:

• Grantor typically serves as trustee initially
• Assets are managed during incapacity
• Assets pass to beneficiaries without probate
• Flexibility to amend the trust

This type of trust is often used for general estate planning and incapacity protection.

Irrevocable Trust

An irrevocable trust generally cannot be changed once created. Assets transferred into the trust are no longer owned by the grantor.

Common reasons for using irrevocable trusts include:

• Asset protection
• Medicaid planning
• Tax planning
• Shielding assets from creditors

Because control is limited, irrevocable trusts require careful planning.

Testamentary Trust

A testamentary trust is created through a will and becomes effective after death.

These trusts are often used to:

• Manage inheritances for minor children
• Control distributions to beneficiaries over time
• Protect assets from misuse

Unlike living trusts, testamentary trusts must go through probate.

Special Needs Trust

A special needs trust is designed to support a beneficiary with disabilities without jeopardizing eligibility for government benefits.

These trusts can:

• Pay for supplemental expenses
• Preserve public benefits
• Provide long-term financial security

They must be structured carefully to comply with benefit regulations.

Charitable Trust

A charitable trust is created to benefit charitable organizations while also providing potential tax advantages.

Common types include:

• Charitable remainder trusts
• Charitable lead trusts

These trusts are often used for philanthropic planning combined with estate and tax strategies.

Who Controls a Trust?

Control of a trust depends on its structure.

• In revocable trusts, the grantor often retains control
• In irrevocable trusts, the trustee controls the assets
• Trustees must follow fiduciary duties
• Beneficiaries do not control trust management

Trustees are legally obligated to act in the best interest of the beneficiaries and according to the trust’s instructions.

What Assets Can Be Placed in a Trust?

Many types of assets can be placed into a trust, provided ownership is properly transferred.

Common trust assets include:

• Homes and rental properties
• Savings and investment accounts
• Business interests
• Valuable personal property

Assets not transferred into the trust remain outside it, which can limit its effectiveness.

What Happens to a Trust When the Grantor Dies?

What happens after death depends on the type of trust.

For living trusts:

• The successor trustee takes over
• Assets are distributed according to instructions
• Probate is typically avoided

The trust continues to operate until all terms are fulfilled.

Do Trusts Avoid Probate?

One of the main benefits of many trusts is probate avoidance.

Probate can be:

• Time-consuming
• Public
• Expensive
• Stressful for families

Assets held in a properly funded trust usually pass directly to beneficiaries without court involvement.

Are Trusts Only for Wealthy People?

Trusts are often misunderstood as tools only for high-net-worth individuals. In reality, trusts are used by people with a wide range of asset levels.

Trusts are commonly used by people who want:

• Control over asset distribution
• Privacy
• Protection for children or beneficiaries
• Clear incapacity planning

The value of a trust lies in structure and control, not just asset size.

Common Misconceptions About Trusts

Some common misunderstandings include:

• Trusts mean losing all control
• Trusts are only about taxes
• Trusts replace the need for a will
• Trusts are too complex to manage

In reality, trusts are flexible tools that can be tailored to individual needs.

When Should a Trust Be Reviewed or Updated?

Trusts should be reviewed periodically and updated when necessary.

Common triggers for review include:

• Marriage or divorce
• Birth or adoption of children
• Changes in financial circumstances
• Relocation to another state

Outdated trusts can create conflicts or unintended outcomes.

How Trusts Fit Into a Complete Estate Plan

Trusts work best when coordinated with:

• Wills
• Powers of attorney
• Healthcare directives
• Beneficiary designations

A coordinated plan ensures consistency across all documents.

Frequently Asked Questions About Trusts

What’s the main purpose of a trust?
A trust manages and distributes assets according to written instructions, offering control, privacy, and protection during life and after death.

Do I still need a will if I have a trust?
Yes. A will often works alongside a trust to address assets not in the trust and to name guardians for minor children.

Can a trust be changed after it’s created?
Revocable trusts can be changed or revoked during life, while irrevocable trusts usually cannot be altered once established.

Does a trust avoid probate entirely?
Assets properly transferred into a trust usually avoid probate, but assets outside the trust may still require probate proceedings.

Is setting up a trust complicated?
Trusts require careful drafting and funding, but they are manageable when structured properly and coordinated with other estate planning documents.

Final Thoughts

Understanding what a trust is and how it works is a key step in effective estate planning. Trusts provide structure, clarity, and control that many other legal tools cannot.

By learning the different types of trusts and their purposes, individuals and families can make informed decisions that protect assets, beneficiaries, and long-term intentions.