Imagine a jar.
Now imagine putting a toy car into the jar. Imagine putting monopoly money into it. And a toy house.
Essentially, that’s a trust. Obviously, the toys represent an actual car, house and money. A trust is an entity created by a settlor (person establishing the trust). The settlor funds the trust with their assets. They can put most of their assets into it by re-titling those assets. For example, instead of having your checking account called the “John Smith Checking Account,” you create a new account called the “John Smith Trust Account”, or something along those lines. Voila. The account is in the trust. For a home, the settlor deeds the house to herself as the trustee of the trust. The house in now in the trust as well. And so it goes for the rest of the assets.
Now, why would anyone do this? A trust has a ton of benefits. Here are a few:
- Most trust avoid probate
- Trusts can be tailored to the specific wishes of the settlor, whereas a will cannot necessarily be made to
- There are potentially positive estate tax ramifications of using a trust to preserve the estate tax exemption
- Trust are private, whereas probate assets are all public information.
Is everyone a prime candidate for a trust? Not necessarily. But for the folks that are, it’s a massive benefit.