In its most basic form, a trust is a three-party financial arrangement. Those three parties are the trustor, the trustee and the beneficiary. Trusts in California and around the country are created by a trustor and managed by a trustee. They hold assets for the beneficiary.

Main types of trusts

Trusts might be referred to by different names, and there may be some overlap in types of trusts, but there are a few main types. For example, trusts are generally either revocable or irrevocable. This refers to the ability of the trustor to make changes to or even revoke the trust. With a revocable trust, the trustor might also be the trustee and beneficiary. On the trustor’s death, one or more successor trustees would take over and manage the trust for one or more beneficiaries. The trustor loses power over assets placed in an irrevocable trust, but it can be a powerful document for protecting assets from taxes, creditors or other threats. A testamentary trust is one that is created on a person’s death.

Uses of trusts

Trusts may be used simply to keep assets out of probate or to control how they are distributed to beneficiaries, but they have other uses as well. For example, a charitable trust helps support a charity while an insurance trust can keep a life insurance payment tax-free.

Because there are so many different functions associated with trusts, people who are creating an estate plan might want to consult an attorney. They might not otherwise realize that a trust could solve a particular dilemma, such as ensuring that a trustee manages any distributions that are made to a financially irresponsible beneficiary or providing for a loved one with special needs without jeopardizing that person’s access to government assistance. Trusts and other estate planning documents should be reviewed periodically in case changes are necessary.