Family · January 24, 2024

What Is a Trust and What Can One Do For You?

Everyone needs an estate plan outlining directions to manage assets and debts after death.

Basic documents, such as wills and powers of attorney, can help your inheritors disburse your assets and wrap up your affairs in an organized manner during a time of stress and grief. But if your estate is large or a bit more complicated than usual—for example, if you want to provide for very young children into adulthood, own property in multiple states or wish to leave at least part of your estate to a nonprofit or charity—the added flexibility of a trust may be worth your consideration.

What is a trust?

Here's a quick look at the key differences between a will and a trust, along with basic characteristics of different trust types.

Infographic depicting what trusts are and what they can do for you

In the world of estate planning, trusts are like a Swiss Army knife: powerful and versatile financial planning tools that most people—especially those with complex or sizeable estates—should be aware of.

67% of Americans surveyed have a general understanding of wills, but just 38% understand living trusts.1

How does a trust differ from a will?

Cost

  • Wills: Typically less costly to create and maintain
  • Trusts: Generally require more time and assistance from a professional, resulting in higher fees

Timing

  • Wills: Take effect after the grantor's death
  • Trusts: May take effect as soon as they're signed and funded

Probate

  • Wills: Possessions transferred via probate
  • Trusts: Help avoid probate, making it less complex for those with property in multiple states or territories

Privacy

  • Wills: Part of the public record
  • Trusts: Contents available only to those specified

Key roles

  • Grantor: Establishes the trust, sets its terms and transfers ownership of assets to a distinct legal entity
  • Beneficiary: Entitled to receive the trust's assets, income or other benefits as determined by the grantor
  • Trustee: Institution or individual responsible for managing the assets as specified in the trust document

Types of trusts

  • Living trust: Funded while the grantor is alive, with control transferring upon their death
  • Testamentary trust: Funded after the grantor's death based on terms of their will
  • Revocable trust: Changeable by the trust grantor during their lifetime
  • Irrevocable trust: Unchangeable unless all beneficiaries agree, via the court system, to any updates

Who has created estate planning documents?

  • 26% of adults 18 to 34
  • 27% of those 35 to 54
  • 46% of those 55 and older2

What can a trust help you accomplish?

  1. Easing wealth transfer for your heirs

    If structured properly, trusts aren't subject to the lengthy probate process, so the final asset transfer can be faster and simpler. Plus, some irrevocable trust options are structured to allow heirs to eliminate or reduce their estate tax burden.

  2. Donating to charity

    Two types of trusts help donors support charities in a tax-efficient way either during or after your lifetime.

  3. Providing for blended families

    Two other types of trusts—qualified terminable interest property trusts, or QTIPs, and AB trusts—enable the trust holder to specify a division of assets that considers heirs from previous marriages.

  4. Setting guardrails for distribution

    Trusts can contain directives that limit the control heirs may have over their assets, such as the amount spent per year or earmarking funds for specific purposes.

64% of the $499B of US charitable giving in 2022 came from individuals.3

Before working with an estate planning attorney to create a trust, you should have a clear understanding of how it can help you achieve your goals. Speaking with a banker who has insight into your financial situation—and access to other experts like insurance specialists and fiduciary officers—may help you identify the type of trust that will work best.

Resources:

1 https://www.lawdepot.com/resources/estate-articles/estate-planning-report/

2 https://www.caring.com/caregivers/estate-planning/wills-survey/#the-prevalence-of-estate-planning

3 https://www.bwf.com/giving-usa-2023-report-insights/

Insights
A few financial insights for your life

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Budgeting with a Baby on the Way

If you're expecting, it pays to prepare for the financial road ahead.
It's important to begin planning before you become pregnant—or adopt—and consider opening a dedicated account for everything from baby gear to medical costs.
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Ideas for Preserving Generational Wealth

Once your retirement is secure, you may want to pursue strategies to preserve wealth beyond your lifetime.
One of the biggest things we talk about in planning is what your lifestyle bucket looks like and what your legacy bucket looks like.

Your investments in securities and insurance products and services are not insured by the FDIC or any other federal government agency and may lose value.  They are not deposits or other obligations of, or guaranteed by any bank or bank affiliate and are subject to investment risks, including possible loss of the principal amounts invested. There is no guarantee that a strategy will achieve its objective.

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