Man Writing a Paper


Gregory S. DuPont Sept. 20, 2019

For many of us, the image evoked by the words "trust fund" is one of wealthy people living on the interest earned on "old money" (i.e., the family trust fund).

Here's good news: while you should have a fair amount of assets before you consider setting up a trust fund, it is no longer solely the province of the wealthy.

What is a trust?

Simply stated, it's a legal document that makes it possible for you to put aside some of your money and direct how it will be used, either upon your death or in some other circumstance.

A trust generally involves three people: a grantor (who donates property or money to the trust), a beneficiary (who receives income and/or principal from the trust), and a trustee (who administers it). A trust can take effect either during the grantor's lifetime or at death, and it can be either revocable (i.e., changeable) or irrevocable (unchangeable).

A trust affords several advantages. The assets in a trust don't have to go through probate, which saves time and money. Additionally, the grantor may be able, under the terms of the trust, to maintain control over the trust assets while he or she is alive and capable, or sick and incapable, or provide for the distribution of trust assets after death. Trusts may also provide certain tax advantages.

Often, the amount to be placed in trust will be determined by the needs of the beneficiary, for example, the care of an elderly parent or a child with a disability.

How can trusts be used?

Many individuals and families have found that trusts offer a number of interesting planning opportunities. Consider the following:

  • A marital family or "credit shelter" trust may actually reduce the estate taxes payable, while at the same time providing a spouse and children with income after the grantor's death.

Even when an estate plan calls for all the assets of one spouse to pass to the surviving spouse under the unlimited estate tax marital deduction, significant estate tax may be due when the surviving spouse dies. Proper use of a carefully drafted family "credit shelter" trust may benefit either the surviving spouse and/or children, while at the same time keeping the assets out of the spouse's estate. This may reduce the overall estate tax bite.

  • Revocable living trusts have become very popular with those interested in avoiding the expense, delay, and publicity of probate, while allowing the grantor to maintain control over the trust assets during his or her lifetime. While a living trust may not be an estate planning panacea, it does offer significant benefits.

The type of trust that best suits your needs depends on your personal situation. Whether you live in a "high-rent" neighborhood (such as Park Avenue in New York City) or in a more modest area (such as Main Street, U.S.A.), you may find that a trust will help you accomplish your estate planning objectives.