A trust is a legal “relationship” between three people, whereby property is held by one party (trustee) for the benefit of another (beneficiary). A trust is created by a creator/settlor who transfers some or all of his or her property to the trustee. The trustee holds that property for the trust’s beneficiary. The beauty of a trust is that the same person may perform two, or even all three of these roles.
A trust cannot replace a will. A trust may be used in addition to a will. This is because a trust can handle only the property that has been put into it. It is the will that controls all property in a decedent’s name at the time of death.
The most common form of trust is a revocable, or “living” trust. A revocable trust is a document (the “trust agreement”) created by you to manage your assets during your lifetime and distribute the remaining assets after your death. Your assets, such as bank accounts, real estate and investments, must be formally transferred to the trust before your death to get the maximum benefit from the trust. This process is called “funding” the trust and requires changing the ownership of the assets to the trust. A living trust can be changed, modified, amended or revoked at any time during your lifetime. You can be your own trustee and you can have a joint revocable trust with a spouse.
There are four main reasons why individuals form a trust. First, it allows them to have some control over how their assets will be used by their beneficiaries after they pass away. Second, it allows the process of transfering wealth afer you pass away to be conducted far more quickly and with very little court oversight/interference. Third, it allows the asset distribution plan you have chosen to remain private, as opposed to a will that becomes public record. Fourth, if done properly, it can help protect you from a guardianship during your lifetime should you become unable to manage your own affairs.