What is a Trust?

by | Apr 13, 2026 | Estate Planning | 0 comments

What is a Trust

What is a trust? It is a fiduciary relationship in which the grantor (also called the settlor, trustor, or trust maker) gives another party, known as the trustee, the right to hold and manage property or assets for the benefit of a third party, the beneficiary.

To be valid and enforceable, three essential elements must exist. There must be a trustee. There must be a beneficiary. And the trust must be funded. Once these elements are in place, a trust can be tailored to meet a wide range of personal, financial, and tax‑planning goals. There are many types of trusts available, each designed for a specific purpose. Below are some of the more common ones. planning.

POTENTIAL TAX ISSUES

While California doesn’t impose an estate or inheritance tax for deaths that occurred on or after January 1, 2005, there may be federal taxes imposed on large estates. Also, while an asset that was received through inheritance might not be taxed, there may be income tax implications for the beneficiary. Further, as per Proposition 19, certain property transfers might provoke reassessment of property taxes. One last thing to be aware of, if you reside in California but own property in another jurisdiction, that property might be subject to the other jurisdiction’s inheritance or estate tax laws.

Types of trusts.
  1. Bypass. Also known as a credit shelter trust, family trust, or B trust, a bypass trust holds a portion of a deceased spouse’s assets and uses that spouse’s lifetime exclusion amount to reduce or eliminate estate taxes. Because the estate tax is calculated at the first spouse’s death, the trust is bypassed for estate tax purposes when the second spouse dies.
  2. Charitable Lead. This trust provides an income stream to a charity of your choice for a set number of years or for your lifetime. After that period ends, the remaining assets pass to you or your loved ones, often with significant tax savings.
  3. Charitable Remainder. A charitable remainder trust provides income to you for a specified period or for life. When that period ends, the remaining assets are distributed to the charity you selected. This structure can offer substantial tax benefits.
  4. Special Needs. A special needs trust allows you to provide financial support for someone with special needs without disqualifying them from receiving government benefits. When properly drafted, this trust supplements the beneficiary’s care without jeopardizing eligibility for programs such as SSI or Medi‑Cal.
  5. Generation‑Skipping. This trust allows you to transfer assets to your grandchildren or later generations without incurring certain taxes. It uses your lifetime exemption to offset taxes that might otherwise be due.
  6. Grantor Retained Annuity. A grantor retained annuity trust, or GRAT, is an irrevocable trust that pays you an annuity for a set number of years based on the value of the assets placed in the trust. When the annuity period ends, the remaining assets pass to your beneficiaries. GRATs are often used to transfer appreciating assets at a reduced tax cost.
  7. Irrevocable. An irrevocable trust cannot be modified or terminated without the beneficiary’s consent. Once assets are transferred into the trust, the grantor gives up ownership and control. These trusts are often used for tax planning, asset protection, or long‑term gifting strategies.
  8. Irrevocable Life Insurance. An irrevocable life insurance trust, or ILIT, is designed to own life insurance policies and receive the death benefit upon the trust maker’s death. The proceeds are excluded from the taxable estate but can still be used to pay estate taxes, equalize inheritances, or provide liquidity.
  9. Marital. A marital trust protects assets for the surviving spouse and qualifies for the unlimited marital deduction. The assets are excluded from estate tax at the first spouse’s death but included in the surviving spouse’s estate.
  10. Qualified Terminable Interest Property. A qualified terminable interest property trust, or QTIP trust, provides income to the surviving spouse for life, with the remaining assets passing to other beneficiaries after the spouse’s death. This structure is commonly used in blended families to protect both the surviving spouse and children from a prior marriage.
  11. Testamentary. A testamentary trust is created through a will and comes into existence only after the individual’s death. It is often used to protect assets for beneficiaries who are young, have medical or substance‑abuse issues, or may not be capable of managing money responsibly. Unlike living trusts, testamentary trusts require probate before they are established.
WHAT IS A TRUST. Final Thoughts

A Trust is one of the most powerful tools in an estate plan, offering privacy, flexibility, and protection for the people you care about. Understanding how a Trust works is the first step toward making informed decisions about your assets and your legacy. There are many types of trusts and not all serve the same purpose. Understanding your goals and choosing what is right for you is essential to protecting your assets, minimizing taxes, and ensuring your wishes are carried out. Feel free to learn more about how to Prepare for Estate Planning. If you are unsure which trust is right for you, now is the time to get clarity. If you are ready to explore your options, schedule a complimentary consultation with me today.

A trust is one of the most powerful tools in an estate plan, offering privacy, flexibility, and protection for the people you care about. Understanding how a trust works is the first step toward making informed decisions about your assets and your legacy.

Because not all trusts serve the same purpose, clarity about your goals is essential. The right trust can help you minimize taxes, safeguard your assets, and ensure your wishes are honored. If you’re unsure which trust aligns with your needs, now is the perfect time to explore your options and get the guidance you deserve.

what is a trust. Call to Action

If you’re ready to explore whether a Trust is right for you, take the next step by learning about the other core documents in a complete estate plan:

When you’re ready to create or update your estate plan, schedule a consultation. I’m here to help you move forward with clarity and confidence.

Francine D. Ward
Attorney-at-Law, Author, Speaker

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