Trusts are separate legal entities set up to handle one's affairs and to hold assets. Trusts may be prepared as part of estate planning.
Every trust has a Settlor or Grantor (the person or person setting up the trust), a Trustee (the person or persons managing and running the trust) and one or more beneficiaries (the person or persons receiving benefits from the trust, such as the right to receive income or principal). Trusts will also indicate under what circumstances the benefits can be paid out, such as to pay for a college education or medical care. Trusts will usually name a primary beneficiary as well as a contingent beneficiary. Trusts will usually have a primary Trustee and contingent Trustees in case the first named individual cannot serve.
There are many different types of trusts, such as:
1) Testamentary Trusts - trusts contained in a Last Will and Testament, which only go into effect after the death of the person who made up the Will;
2) Revocable Living Trusts (RLT) - set up during one's lifetime to hold assets; the person who sets up an RLT, the Settlor or Grantor, can revoke or cancel the trust at any time; RLT does not usually protect assets from taxes, creditors or having to pay for long term care;
3) Irrevocable Trusts (IT) - once set up, these trusts cannot be revoked or changed without permission from a court or all of the involved parties; these trusts can be useful to give up control of certain assets for estate or long term care planning situations; and
4) Special Needs Trusts (SNT) - these trusts are set up to provide funds for a disabled or special needs beneficiary, often a minor or an adult disabled child; there are different types of SNTS depending on who provides the money to fund the trust and what happens to the money after the beneficiary's death.
It is important to determine if trusts might be right as part of your individual estate plan. Not everyone needs a trust, but they can be helpful to protect many types of beneficiaries.