What is a Trust

A trust is a written agreement when someone called the Trustee holds and manages assets for the benefit of another. Think of the trust like a safety deposit box. You put something into it, and when you

want to get it out you have to go through your trustee (like the banker, who turns the second key). In some cases this provides a layer of protection, because if the asset is not directly in your hands, no one can take it from you. Trusts are widely used in estate planning, wealth management, and business structures because they provide flexibility, protection, and control over how assets are handled during a person’s lifetime and after their death. You do not have to be rich to use a trust! Any single person who owns a house might use a trust just to avoid a full probate.

The hardest part of understanding a Trust is learning that the Trustee does not own the assets, and neither do the beneficiaries. If I put my house into a trust and name my kids as beneficiary when I pass away, I don’t own my house anymore and my kids don’t own my house yet. I might be the maker of the trust (called a Grantor or Settlor) and I might be my own trustee, depending on the type of trust I’m using. I control the house, and they will get the house. But until I pass away or decide to have my trust give it to them, they have no say. The TRUST owns the house. I tell it what to do with the house, but my little trust box, which can’t think for itself or do anything for itself, owns my house. I know I’m in control. But I am not technically the owner.

But if you do fully control the trust, such as in the case of a revocable trust, there is no asset protection. There is probate avoidance, and after you pass away the assets might be protected for the next person who inherits, but that is it. For example, if I put my house in trust for my kids and tell the Trustee who takes over after I pass that they should help my kids pay for school, but do not give them everything until they are 25. Well, then until the kids are 25 I know someone I picked is watching out for them and ensuring they do not spend their inheritance on silly things, or lose it to a bad first marriage.

If you do not fully control the trust, there can be protection even while you are living. This is the reason many older people (over 65) will use Irrevocable Trusts. This kind of trust can be changed. You

can sell a house that is in such a trust, or invest money. You can change the beneficiaries you first wanted, maybe because one of your kids is going through a lawsuit or bad divorce and you need to protect their share longer. Your taxes do not have to go up, though they also will not go down. “Irrevocable” just means that whatever you put into the trust box you cannot TAKE back. It is a one way street from you to your beneficiaries, with a stop inside of the box as long as you say it needs to stay there. Once it gets out of the trust to a beneficiary, there is the change they would give it back. Though you cannot control that.

Final Thoughts

A trust is a powerful tool for managing, protecting, and transferring wealth. While trusts can be tailored to a wide range of goals, setting one up requires careful planning and legal guidance. Anyone considering a trust should consult with an estate planning attorney and/or financial advisor to ensure it fits their unique needs and circumstances.

Attorney Halley C. Allaire is principal in the law firm of Allaire Elder Law, a member of the National Academy of Elder Law Attorneys, Inc., with an office at 271 Farmington Avenue, Bristol, (860) 259-1500, or on the web at www.allaireelderlaw.com. If you have a question, send a note to Attorney Halley C. Allaire and your question may be discussed in a future column.