While a trust fund might conjure an image of a vault filled with gold, you don’t need to be a millionaire to create one. A trust is a legal contract that allows a third party to hold and manage assets for beneficiaries.

Many people can use a trust to control what happens to their assets if they’re incapacitated or pass away and to help beneficiaries avoid a lengthy probate process. While they can be more expensive to create than a will, a trust can be a useful way to transfer assets to others.

How Do Trusts Work?

People often create trusts as part of their estate plan.

Trusts can work differently depending on the type and the trustor’s intentions. Every trust has a trustor, a trustee and a beneficiary.

A Trustor

The trustor, settlor or grantor, creates the trust and decides which asset to put into it. You may want to put cash savings, investments, physical property or life insurance proceeds in the trust.

A Trustee

A trustee (or trustees) manages the trust and has a fiduciary duty to the trust’s beneficiaries. The trustor can be the trustee with some types of trusts, but attorneys, financial advisors or other third parties are often appointed as trustees.

A Beneficiary

The beneficiary (or beneficiaries) will receive the proceeds from the trust. You could name children, a spouse, other relatives or charities as beneficiaries.

For example, let’s say you create a trust and designate a financial institution as the trustee and your teenager as the beneficiary. You then transfer money and investments into the trust, but you’re worried that your child might not be responsible enough to manage the money right now.

With a trust, you can establish specific instructions for how the funds should be managed and when they’ll be distributed. Perhaps they can only use the funds for higher education until they turn 25.

Additionally, if you die, the trust’s funds can be passed on to your child without going through probate — the sometimes lengthy and expensive legal process that includes distributing assets to the proper heirs after someone passes.

A trust can also be beneficial when there are complex family relationships. For example, you may want to create a trust before a second marriage when you both have children. If you pass first, the trust could specify that your spouse receives proceeds from the assets for the rest of their life. And then, the money will pass on to your children. Otherwise, all your assets may pass to your spouse and then to their children.

The Difference Between Wills and Trusts

Wills and trusts can both be important aspects of estate planning, but they aren’t the same.

A will is a legal document that records your wishes for what should happen after you die. With a will, you can name beneficiaries for your assets, guardians for your children and whether you want to be cremated or buried.

One difference between wills and trusts is that, with a will, your estate may still have to go through probate court.

During probate, your will’s executor or a court-appointed administer will oversee the distribution of your estate’s assets. Others, such as creditors, can also make claims against your estate.

While a detailed will can help guide the probate process, your assets can still be revealed in public records, and your estate may need to pay attorney and court fees. With a trust, you can pass assets to beneficiaries without going through probate.

Another difference is that a will only comes into effect after you die. A trust can give you more control over your assets while you’re still alive. For example, you can use a revocable trust to detail how you want your assets managed if you become disabled or injured.

But you also don’t need to choose between a will and trust. Often, they’re used together as part of an estate plan.

Why Have a Trust?

There are many reasons why you might want to have a trust, and different types of trusts can help you accomplish different goals.

Here are some common reasons why people create a trust:

  • Pass on assets:
    • Without going through probate
    • Without having them appear in public records
  • Pass on a family business.
  • Control when beneficiaries receive funds.
  • Control how beneficiaries can use the funds.
  • Protect assets from beneficiaries’ creditors.
  • Give to charity in tax-advantaged ways.
  • Shelter Life insurance proceeds from estate taxes.
  • Help beneficiaries avoid estate and transfer taxes.

Trusts have upfront costs, both in terms of money and time. And there may be ongoing commitments for managing it. However, if you think you could benefit from creating a trust, you may want to consult with an estate planning attorney to discuss your specific situation.

What Are Some Different Types of Trusts?

You may want to consider different types of trusts depending on your goals:

Marital Trust

A marital or “A” trust is set up to transfer assets from a spouse who dies to the surviving spouse. The assets generally become part of the surviving spouse’s estate, and they may be subject to estate taxes.

Credit Shelter Trust

A credit shelter trust, also known as a bypass or “B” trust, can give a surviving spouse limited access to proceeds from the trust. However, the assets don’t become part of the surviving spouse’s estate. It can be beneficial when a couple wants to pass on more than the estate tax exemption limit for the surviving spouse.

Charitable Remainder Trust

charitable remainder trust can let you receive the tax deduction for donations you plan to make to charity when you die. You may be able to set it so that you receive the proceeds from the assets while you’re still alive. Then, when you pass, the charity receives the remainder of the assets.

Other Types of Trusts

Trusts can offer different levels of control, and other types of trusts may be set up to accommodate specific situations:

  • Spendthrift trusts: With a spendthrift trust, you can control how and when beneficiaries receive the assets. You might use this particular type to set up a college fund for a child or grandchild. They can also be set up so the beneficiaries can receive the earnings or gains on the assets, but not the assets themselves.
  • Generation-skipping trusts: A generation-skipping or dynasty trust lets you transfer money to a grandchild or someone who is at least 37.5 years younger than you and isn’t a spouse or ex-spouse. It can help pass on generational wealth while avoiding estate taxes. Although, there is a separate generation-skipping transfer tax.
  • Special needs trusts: Special needs or supplemental needs trusts are commonly set up to benefit a friend or family member who has a disability. The recipient can receive income from these trusts without the assets impacting their eligibility for Supplemental Security Income (SSI) or Medicaid.

What Is the Estate Tax Exemption?

Some types of trusts are created to help individuals and families pass on wealth without having to pay estate taxes. However, this won’t be a concern for most households.

In 2022, the estate tax exemption is $12.06 million for individuals and $24.1 million for married couples. The exemption may rise with inflation each year. However, it could be cut in half in 2026 when the expansion from the Tax Cuts and Jobs Act expires. States may also have their own estate and inheritance taxes.

What Is a Revocable Trust?

Another important distinction between the types of trusts available is that you can create a trust that is either revocable or irrevocable.

Revocable vs. Irrevocable Trusts

Comparing revocable versus irrevocable trusts can help you determine which type will be best for your needs.

A revocable trust is the more common type. It gives you control and flexibility as you still own the assets, can change the terms or dissolve it at any time. You can also be the trustee, but you’ll want to name a successor trustee in case something happens to you.

An irrevocable trust, as the name implies, generally can’t be changed or dissolved after it’s created. You can’t get assets that you transfer to the trust back, and you’ll likely want to appoint a third-party trustee. However, this lack of control also comes with benefits. Because the trust owns the assets, you aren’t liable for taxes on the assets. They also can’t be seized if there’s a judgment against you or by your creditors.

Generally, a revocable trust becomes an irrevocable trust when the trustor dies.


A trust can provide a wide range of benefits for trustors and beneficiaries. Looking into trusts could be one of your financial priorities as you review or create your estate plan. Wealthy families may want to use a trust to avoid estate taxes or receive other tax benefits. But you can also create a trust to help a family member who is disabled or pass on assets without a drawn-out or expensive probate process.

This informational material shall not be considered financial advice. The Hartford assumes no responsibility for any financial, investment, or tax-related decisions. Those seeking resolution of specific financial, legal, tax, or business issues, questions, or concerns regarding this topic should consult their own financial, investment, tax, legal, or other business consultants, advisors, or other professionals.