A trust is a legal tool designed to manage money or property for someone, without giving that person outright control of the assets. They are most often used by those who want to provide financial help to family or friends, but do not believe the person is able to competently manage the money on their own. Trusts can also be used as a tool for avoiding taxation or court judgments.

Some key terms for understand trust law:

Beneficiary - the person (or other entity, such as a charity) for whom the trust was created to help. 

Settlor - the person or institution who creates and funds the trust, for the benefit of another.

Trustee - the person or institution which is put in charge of managing the trust assets for the benefit of the beneficiary. 

A trust can be express (written) or implied, revocable or irrevocable, living (created while the settlor is living) or testamentary (created as part of the settlor’s will, and effective upon their death). Provisions of a trust can generally be tailored to suit the settlor’s wishes, allowing him or her to control use of the money past the time of their death. It is important to note that a living trust is different from a living will, which is not for the benefit of another, but rather contains the drafter’s end of life instructions. 

When a trust is created, its assets become the legal property of the trustee, who in turn has a legal duty to manage those assets for the beneficiary. This duty is referred to as a fiduciary duty, and it is usually controlled by the terms of the trust, as well as state and federal law. Often, the trustee is instructed to pay the beneficiary a certain amount over a period of time, and to pay additional amounts at their discretion. Another frequent trust arrangement is for the settlor to grant their surviving spouse a regular income from the trust, and grant the remaining principal to children or grandchildren. This creates a situation where the spouse is provided for, and yet ensures that the remaining inheritance won’t be wasted by the spouse or conveyed to a second spouse if he or she remarries.

Most types of trusts are revocable as long as the settlor is alive and legally competent. This means that if the settlor creates the trust, then later decides that the beneficiary no longer needs or deserves the assistance, then the trust can be modified or revoked and the assets returned to the settlor. All testamentary trusts are revocable until the settlor dies. Some living trusts, such as certain charitable and insurance related trusts, are irrevocable upon creation.  

One of the most attractive features of trusts is their ability to shield assets from tax liability and creditors claims. However, there are many exceptions that apply, and the law in this area can be extremely technical and difficult to navigate. For instance, people often create trusts for the benefit of their children in order to shield the assets from their creditors. However, those who name themselves as trustees (a common practice) will unwittingly open up the trust for their creditors to reach.  On the other hand, a properly drafted and executed spend thrift trust can shield the assets from both the setllor’s and beneficiary’s creditors.