How Does A Trust Operate?

Trusts are often used when planning your estate for a variety of reasons. A trust can provide a number of benefits such as control over your assets, avoidance of probate and reduction of estate tax liability. Although there are numerous different special use trusts that have evolved over the years, the basics of a trust remain the same across all trusts. Understanding what a trust is and how one operates can help you when making estate planning decisions.

A trust requires four elements — a trustor, a trustee, a beneficiary and assets. The trustor, often referred to as the maker or grantor, is the person who creates the trust. The trustee is the person appointed by the trustor to oversee and administer the trust. A trust must have at least one beneficiary, but may have more. The beneficiary is the person who receives the benefit of the trust assets and/or income. Finally, assets, in the form of money or property, must be designated as trust assets to fund the trust. In some cases, a person may play more than one role within a trust. The trustor, for example, may also be a beneficiary.

The terms of a trust will dictate how the trust is administered. As long as the terms are legal and possible to perform, the trustee must follow the terms of the trust. The trustee will distribute the trust funds as directed in the trust to the beneficiaries.

A trust may allow you to pass assets to a loved one without the need for the assets to go through probate. Consult with your estate planning attorney for additional details if you believe a trust may be helpful in your estate plan.