Disclosure: This article contains affiliate links. We may earn a commission if you apply through our links, at no extra cost to you.
Most people think trusts are only for the wealthy. That is not true. A trust is a legal tool that can benefit almost anyone who owns property, has children, or wants to make things easier for their family after they are gone.
This guide explains what a trust is, how it works, and whether you need one.
This article is for educational purposes only. Consult a licensed estate planning attorney for advice specific to your situation.
What Is a Trust?
A trust is a legal arrangement where one person (the grantor) transfers assets to another person or institution (the trustee) to manage for the benefit of a third party (the beneficiary).
In many cases, you can be all three: the grantor, the trustee, and the beneficiary — while you are alive. After your death, a successor trustee takes over and distributes assets to your chosen beneficiaries according to your instructions.
The assets inside a trust are no longer technically yours. They belong to the trust. This distinction has important legal and tax consequences.
How a Trust Works
You create a trust document, transfer assets into it, and name a trustee to manage them. The trust document spells out exactly what the trustee can and cannot do with those assets, and when and how beneficiaries receive them.
For example, you might create a trust that holds your house and investment accounts. The trust says your children will receive equal shares at age 25. Until then, the trustee manages the assets for the children’s benefit — paying for education, housing, and medical expenses as needed.
Types of Trusts
Revocable Living Trust
This is the most common type for personal estate planning. You create it while you are alive. You can change it, add assets, or cancel it at any time. You typically serve as your own trustee while you are alive and mentally capable.
The main benefit: assets in a revocable trust skip probate entirely. Probate is the court process that validates a will and oversees asset distribution. It can take one to three years and cost 3% to 8% of the estate’s value in legal and court fees. A revocable trust sidesteps all of that.
The downside: it offers no protection from creditors while you are alive, because you still control the assets.
Irrevocable Trust
Once you create an irrevocable trust and transfer assets into it, you cannot take those assets back or change the terms without the beneficiary’s consent. You give up control.
In exchange, those assets are generally protected from your creditors. They may also be removed from your taxable estate for estate tax purposes. Irrevocable trusts are common tools for Medicaid planning and asset protection strategies.
Testamentary Trust
A testamentary trust is created inside your will. It only takes effect when you die. Unlike a revocable living trust, assets still go through probate first before being transferred into the trust.
These are commonly used to hold assets for minor children until they reach a certain age.
Special Needs Trust
A special needs trust holds assets for a beneficiary with a disability without disqualifying them from government benefits like Medicaid and SSI. These programs have asset limits. Assets held in a properly structured special needs trust do not count toward those limits.
Charitable Trust
Charitable trusts allow you to benefit a charity while also benefiting yourself or your family. A charitable remainder trust, for example, pays you income for life and transfers the remaining assets to a charity when you die. These can provide significant tax benefits.
Benefits of a Trust
| Benefit | Revocable Trust | Irrevocable Trust |
|---|---|---|
| Avoids probate | Yes | Yes |
| Keeps estate private | Yes | Yes |
| Controls when heirs receive assets | Yes | Yes |
| Protects assets from creditors | No | Yes |
| Reduces estate taxes | No | Yes (in some cases) |
| Can be changed | Yes | No |
| Manages assets if incapacitated | Yes | Yes |
Avoiding Probate: Why It Matters
Probate is the court-supervised process of distributing your estate after death. Even with a will, most estates go through probate. Here is why that is a problem:
- It is public. Anyone can look up your will and see what you owned and who you left it to.
- It is slow. Probate typically takes six months to two years, sometimes longer for complex estates.
- It is expensive. Attorney fees, court fees, and executor fees can consume 3% to 8% of your estate.
- Your family cannot access assets during the process, even for urgent needs.
A revocable living trust eliminates these problems for the assets held inside it. Your successor trustee can distribute assets to beneficiaries in days or weeks, not years.
Trusts vs. Wills
A will and a trust are not the same, and one does not replace the other. Most estate planning attorneys recommend having both:
- A revocable living trust for your main assets (home, investment accounts) to avoid probate.
- A pour-over will that catches any assets not transferred to the trust and funnels them in after your death.
- The will also names a guardian for minor children, which a trust cannot do.
Do You Need a Trust?
A trust makes the most sense if:
- You own real estate in more than one state (avoiding multiple probate proceedings)
- You have children from a prior marriage and want to protect their inheritance
- You want to control when and how your heirs receive their inheritance (for example, not at age 18)
- You value privacy and do not want your estate to become public record
- You have a significant estate and want to plan for estate taxes
- You have a beneficiary with special needs
- You want protection in case of your own incapacity
If your estate is simple (a small savings account, no real estate, and a spouse who inherits everything), a will plus beneficiary designations may be sufficient.
How to Create a Trust
- Decide what type of trust fits your goals.
- Choose a trustee and successor trustee (someone you trust to manage assets responsibly).
- Work with an estate planning attorney to draft the trust document. Online tools can create basic trusts, but complex situations warrant professional help.
- Fund the trust. This is the step most people skip, and it is critical. Transfer actual assets into the trust’s name. Real estate requires a new deed. Accounts require new titling or transfer-on-death designations. An unfunded trust does nothing.
- Update your beneficiary designations on retirement accounts and life insurance to align with your trust strategy.
How Much Does a Trust Cost?
A basic revocable living trust drafted by an attorney typically costs $1,000 to $3,000. More complex trusts with irrevocable provisions, special needs planning, or tax strategies can cost $3,000 to $10,000 or more.
Online services like Trust & Will offer revocable living trusts starting around $200, which works for straightforward situations. Compare that to the potential cost of probate on a $500,000 estate — which could run $15,000 to $40,000 in fees — and the investment looks very reasonable.
Frequently Asked Questions
Is a trust only for rich people?
No. Trusts benefit anyone who owns property, has children, or wants to make the estate transfer process smooth for their family. The cost of setting up a trust is usually far less than the cost of probate.
Can I be my own trustee?
Yes. With a revocable living trust, you typically serve as your own trustee while you are alive. You name a successor trustee who takes over if you become incapacitated or when you die.
What happens to my trust when I die?
The successor trustee takes over. They manage and distribute the trust assets according to your instructions, without court involvement. This is the main advantage of a trust over a will.
Does a trust protect assets from lawsuits?
Only irrevocable trusts provide creditor protection. A revocable trust does not protect assets from your creditors because you still effectively control them.
Do I still need a will if I have a trust?
Yes. Most estate planning attorneys recommend a pour-over will alongside a living trust. The will catches any assets you forgot to put in the trust and names a guardian for minor children, which a trust cannot do.