Trusts can be used to help preserve and distribute wealth to meet a wide variety of personal and financial goals. Some people use them to protect assets from future claims while continuing to receive discretionary income and principal distributions from those assets. Others use them to pass wealth to future generations. Still others use them to provide for charitable organizations. While the goals may vary, some of the most common reasons to create trusts are:

  • Privacy and preserving confidentiality of financial affairs
  • Seamless transition without undue delays
  • Flexible distribution "models"
  • Providing for close friends, third parties, and aging parents
  • Advisors with elderly clients in transition from home to assisted living environments
  • Provide for personal care in the event of incapacity
  • Shift income taxes to beneficiaries in lower tax brackets
  • Protect family assets from poor management by beneficiaries who are not capable or experienced
  • Preserve family assets (such as a farm, business, etc.) and provide for continuity of operations
  • Provide support to multiple generations, including children and grandchildren
  • Reduce expenses and maintain assets by avoiding expensive probate and minimizing estate taxes
  • Provide a permanent legacy for a charitable organization
  • Prevent loss of assets due to divorce, bankruptcy, or lawsuit against a beneficiary

These goals can sometimes be accomplished outside of a trust, but often not with the same tax efficiency and certainty. Other times, these goals can only be met through the use of a trust.

Here's why: Trusts are legal entities created specifically to hold assets for the benefit of a beneficiary or beneficiaries - a person, a group of people, or even another entity. Trusts enjoy specific legal protections that may vary from state to state. They can be funded with almost anything: cash, marketable securities, real estate, insurance policies, and even shares of privately held companies.

Different types of trusts can be used to meet the goals of the grantor - the person who establishes the trust. Some trusts require the grantor to give up control of the trust assets immediately. Others allow the grantor to retain control of the assets during his/her lifetime and to collect income from the trust prior to his/her death. It is not uncommon for someone to need more than one type of trust to meet all of his/her needs.