If you were to ask me what a day is, I think you would understand that there is a context to that question. For example, there is the scientific answer of a 24-hour time period, there is the meteorological answer separating it from night, there is the philosophical answer of it being what you make it, and I’m sure there are a great number of other answers that you could have based on the conversation. Similarly, to answer the titular question, there must be context. So, the answer will almost assuredly need to be contextualized. It is similar with a trust, as they can be arranged in many ways, for many purposes, and with a myriad of different offshoots.
You can look up the definition of a trust, and get a really good answer, like Fidelity‘s definition that a trust is “a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries.” I like to think of it as something that was originally set up for parents, who had kids that they wanted to “benefit” from their wealth, but the kids were not old enough (legally or practically) to handle that wealth. So, they set up someone that was “trusted” to manage the affairs until such a time as the children were ready to take over. This is from whence we get the names beneficiary and and trustee.
The trustee is the person who controls (from a legal perspective) the asset or property, while the beneficiary is the one who gets the accumulated benefit or wealth. Why such an arrangement might be desired can range from protecting youthful exuberance from itself (or as we prefer to call it, Controlling Your Wealth or Protecting Your Legacy), Keeping your ownership or wealth secret (Privacy), or Tax Classification Savings (Probate, Bypass, Testimonial, or Charitable, to name a few). A trust can serve a variety of purposes, but the basics are always the same.
Some people believe that everything should be shoved into the infrastructure of a trust. While trusts are versatile and can handle a variety of circumstances, they certainly aren’t for everyone and they don’t make sense in every situation. There are times where another way to organize ownership or assets would be superior. To go over each of those would be impossible, but suffice it to say, there are also instances where a trust makes sense. Stay tuned next week, where we begin to differentiate between specific kinds of trusts.