Video: Do you know what a trust is?

David Chilton:

Until the last few years, I didn’t really get asked much about the use of trusts in estate planning, much at all. In fact, hardly ever.

Now, interestingly, they come up in conversation quite frequently.

Why? What’s changed?

Well, to understand that, it’s first key to know exactly what a trust is.

A trust is a legal tool—keyword there, tool—by which assets are held for the benefit of specified beneficiaries.

The settlor is the person who creates the trust. Then, of course, the trustees are the persons appointed by the settlor to manage the trust. And finally, the beneficiaries are those named to receive income or capital, or both, from the trust.

Great, but the natural questions are: why would a settlor bother with a trust? Why not just leave the money or assets directly to the beneficiaries?

Reasonable questions.

Well, what if the beneficiaries are six and nine years old?

Or what if the beneficiary is disabled and unable to manage the monies on their own?

Or what if one of the potential beneficiaries battles addiction issues?

Or what if it’s, let’s say, a cottage being left to three kids but for family harmony reasons, the settlor wants an unbiased trustee to make the decisions around scheduling, renovations and when to sell?

Or what if the beneficiaries span multiple generations? Maybe the settlor wants money released from the trust as each grandchild goes to buy their first home.

Again, it’s a tool. Trusts are tools. They, in some circumstances, make it easier to carry out the wishes of the deceased. Easier to avoid potential problems. Easier, to be honest, to protect some beneficiaries from each other and from themselves.

So, why so many more questions now than years ago?

The aging baby boomers, of course. The increased size of the mass-affluent cohort. The generational wealth transfers that we’re now in the midst of.

Many are realizing that trusts can be a handy tool.

Oh, and by the way, we’re now seeing trusts set up for pets. Seriously, that’s a thing. When you’re gone, you don’t want times to be “ruff” for your dog. See what I did there?