A Matter of Trusts

If you hold meaningful assets, it’s important to have some kind of estate plan in place, formalizing your final wishes — even if you’re still relatively young. Trusts can help with that.

While trusts are commonly used by the wealthy, they can serve the middle class well, too. A trust involves assets being held by one or more trustees for the benefit of one or more beneficiaries, and it can be specific about when the assets go to the beneficiaries. (For example, it might be upon your death, or when an heir turns, say, 35.)

Trusts can be used for many purposes, such as dividing ownership of property. They can be preferable to wills sometimes, too. That’s because they can take effect immediately, handling circumstances that wills cannot. For instance, if you’re seriously injured, a trustee may take over your finances until you’re able to assume responsibility again. Trusts can usually be changed without the formalities required for altering a will, and they can help you postpone or avoid some taxes. Assets that pass through trusts generally don’t go through probate, so they can help you avoid unnecessary delay and expense, and can keep your arrangements more private.

There are downsides to trusts, though. For starters, they’re often more complicated to create than a will. (A poorly drafted trust can be nearly impossible to execute.) Many professionals charge much more to draft a trust than a will, though it can still be worth the money.

There are revocable and irrevocable trusts, and living and testamentary trusts (the last are linked with wills). Clearly, one can get confused quickly in the world of trusts. It’s also not always easy to determine when establishing a trust is your best move. Read up on the topic before deciding, and consider consulting a professional or two. You can learn more in “The Wall Street Journal Complete EstatePlanning Guidebook” by Rachel Emma Silverman (Crown Business, $16) and “American Bar Association Guide to Wills and Estates” (Random House Reference, $18).