First things first – a trust is a very specific relationship in which one individual, the settlor, who entrusts the management of property and/or additional assets to another individual, known as the trustee.
For example, say there is a boy who lives with his wealthy grandfather. Before the grandfather passes away, and because the boy is still young, he sets up a trust. In doing so, he entrusts the management of most of his assets to a close friend. He gives this friend specific instructions that the assets be protected and used to the boy’s benefit until the boy reaches an age where he may take over the assets himself.
There are many reasons why someone may set up a trust, including asset protection. Some common reasons are listed after the jump.
While there are different reasons one might look to trusts, asset protection is one of the main, if not the main, reason most consider trusts. Asset protection can take many different forms.
- Shielding assets from creditors
- Saving assets for your children, grandchildren or other loved ones
Other reasons to create a trust might include:
- Minimizing estate taxes
- Bypassing the expenses involved in probating a will
- Setting up an investment pool, to be managed by professionals
- Creating a fund to support yourself, should you become handicapped or otherwise incapacitated
- Providing ongoing benefits to a certain charity, or many
- Setting up a scholarship or grant, perhaps in your memory or in the memory of a loved one
While there are many good reasons to consider setting up a trust, it is also important to be aware of the cost and time involved. It is also important to consider the fact that you might be giving up control of some assets. For these reasons, and others, it is best to consult with an experienced trust attorney before proceeding.
Related Resource
- Money Tip – Why Create a Trust? (The Frederick News Post)