There is a wide misperception that trusts are used only by the rich to transfer their wealth to their descendants. In addition to protecting inheritance, however, trusts also have advantages for families with relatively modest assets.
A trust is a legal creation made through a private agreement. The parties are the grantor, who contributes property for the benefit of beneficiaries, and a trusted person identified as the trustee. The trust is governed by a trust document containing conditions set by the grantor the timing and conditions for distributing assets to beneficiaries.
Trusts can be created for many reasons that address the grantor's immediate needs. These include asset protection trusts which provide protection against creditors, spendthrift trusts which protect beneficiaries from their own irresponsible conduct and special needs trusts which protect children with special needs or disabilities. Trusts may also be established to protect assets when applying for Medicaid and for funding education.
Trusts are also made as part of tax planning for estates. Trusts may be established to pass on wealth to future generations.
Trusts are particularly helpful if an heir is under 18 years old and both of their parents died. The grantor's will, in this case, may create a testamentary trust to hold and mange assets until the children reach designated ages.
A family member or friend can serve as a trustee. Many times, this role is assigned to a professional such as an attorney, financial advisor or a bank or trust company. The grantor may allow a trustee to act independently or together as co-trustees.
Trustees may be granted broad authority and have absolute discretion. Trusts can also have a more restricted ascertainable standard. For example, the trustee has been granted the authority to make distributions only for a beneficiary's health, education, maintenance and support.
There are many options that can be discussed with an attorney. They can also help assure that trust documents are properly drafted and meet the grantor's needs.