What’s a Trust?

/in , , , , , /by

What is a Trust? A Plain-English Explanation

In the world of elder law and asset protection, a trust is one of the most powerful and flexible tools available. While the concept can seem intimidating, a trust is simply a private legal contract that allows you to control your property, both during your lifetime and after you are gone.

The Three Key Roles in Every Trust

At its core, a trust is an agreement between three parties:

  • The Grantor (or Trustmaker): This is the person who creates the trust and transfers their assets into it.
  • The Trustee: This is the person or institution responsible for managing the trust’s assets according to the instructions laid out in the contract. This is a significant legal responsibility, known as a fiduciary duty.
  • The Beneficiary: This is the person or people for whom the trust was created and who will receive the benefits from the trust assets.

Interestingly, in the most common type of trust—the revocable living trust—the same person often starts out playing all three roles: you are the grantor, you are the trustee of your own trust, and you are the primary beneficiary during your lifetime.

How Does a Trust “Own” Property?

A common point of confusion is how a trust holds property. A trust itself, being a contract, cannot own anything. Instead, property is legally transferred to the trustee, who then holds and manages it in their fiduciary capacity for the benefit of the beneficiaries. This process of transferring assets into the trust is called “funding,” and it is a critical step that many people miss.

When is a Trust the Right Choice?

While a will is a foundational document, a trust offers a higher level of control and protection that is beneficial in many common situations. A trust-based plan is often the right choice for:

  • Families who wish to avoid the public, costly, and time-consuming court process of probate.
  • Individuals who own real estate in more than one state.
  • Blended families and those in a second marriage who want to protect children from a prior relationship.
  • Families who want to protect an inheritance for a beneficiary from creditors, lawsuits, or a potential divorce.
  • Those who want to keep their financial affairs private.

Trusts for Asset Protection and Long-Term Care

Trusts are also essential tools for asset protection, particularly when it comes to the high cost of long-term care. It is vital to understand, however, that a standard revocable living trust does NOT protect your assets from your own creditors or the cost of a nursing home during your lifetime. To achieve this level of protection, more advanced planning using irrevocable trusts is required.

A well-drafted trust can be a key component in a strategy to qualify for benefits like Medicaid, Special Assistance, or the VA Pension. It allows you to protect your assets for your spouse and children while getting the care you need.

Ultimately, a trust provides a level of control that is impossible to achieve with a simple will, including directing the administration of your trust and avoiding a public guardianship proceeding if you become incapacitated. A properly structured estate plan can save your family thousands in the long run. Call our office at (919) 256-7000 to schedule a consultation.