Chapter 9: How Trusts Work
A Quick Look at a Misunderstood Tool

We hear all the time about trust funds—or at least we do if we follow the lives of the rich and famous. Are they only for the rich?

Not necessarily. Like a will, a trust is a very useful instrument in the estate-planning arsenal. Estates can be as diverse as people, and the flexibility of a trust makes it useful for many different needs.

Should you have a trust? It depends on the size of your estate and the purpose of the trust. For example, if you mainly want a living trust to protect assets from taxes and probate, but your estate is under the current federal tax floor and probate is not a problem in your state (or your estate can qualify for quick and inexpensive probate in your state), some lawyers would tell you it isn’t worth the cost and administrative hassle, which can make trusts impractical for most young people unless they’re relatively wealthy.

On the other hand, a trust may be a very desirable solution to many problems. A funded living trust may avoid the need to appoint a guardian of your estate if you should become disabled (although a durable general power of attorney may also avoid a guardianship proceeding). A trust for the benefit of others, such as minor children and grandchildren or disabled relatives, provides a mechanism for managing property without court supervision. A trust can also provide protection from creditors for beneficiaries.

This chapter discusses general principles of trusts and their common uses. It should help you determine if one is suitable for you. Chapter 11 covers the most popular trust--the revocable living trust.