Most people think of trusts as something that only the super-rich need: a mysterious legal trick to evade taxes (and rack up tons of attorneys’ fees). In reality, trusts can be helpful for folks at any income level and are much more commonplace than most people realize. For example, if you’ve ever listed your spouse or child as a beneficiary on a bank account, you’ve technically set up a simple trust. The three types of trusts discussed below can help you protect your assets.
What is a trust?
A trust is a tool for dividing ownership of property between legal title and beneficial enjoyment. The holder of legal title is called the trustee and is responsible for managing the property based on the terms of the trust for the benefit of the named beneficiary of the trust. Some trusts are revocable, because you can change your mind at any time about who the beneficiaries are, or you can take the property out of the trust entirely. Trusts that don’t allow you to change the terms once the trust has been established are irrevocable trusts. The distinction between revocable versus irrevocable trusts is very important, since some types of trusts won’t work if you set them up with the wrong kind of revocability.