Unlike wills, advance directives, and powers of attorney, which are a great idea for all adults, not everyone needs a trust. A trust is a tool that can manage your property even if you become or disabled. It can also be more flexible than simply giving your property away in a will.
In legal terms, a trust is an agreement where one person (the grantor) gives property to another person (the trustee) to hold the legal title for the benefit of someone else (the beneficiary). The grantor, trustee and beneficiary may initially be the same person.
A trust is more flexible than giving your property away.
A trust is more flexible than giving your property away.
One way of thinking about trusts is to think of them as containers. You put whatever you want into it — your home, your belongings, bank accounts. Then you give the container to your trustee to manage, or keep it yourself (if you named yourself trustee.) Your trustee manages the contents according to the trust agreement, the actual legal document that your lawyer helped draft for you. The trustee will distribute the assets to the beneficiary (or beneficiaries) in the way you decide. The trust ends when you decided it would, either at a specific date or at an event (like the death of a beneficiary or when the beneficiary reaches a certain age.)
Why go through all this trouble? Why not just give the assets directly to the beneficiary?
The beneficiary might not be able to manage the property him or herself (think of a minor child or a disabled person.) You may want to provide for someone in a more flexible way than simply giving them the property. For example, you could have a trust provide for your wife until she dies and then the remaining property goes to your children from a previous marriage. Or a trustee could manage finances until your children are old and wise enough to handle it.
A trust can also allow a trustee to manage your own assets if you become disabled. Sometimes a trust can help reduce the Maryland or federal estate taxes.
Here’s three examples of what trusts can do.
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