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What do trusts do?

Trusts are a legal vehicle that can hold assets. When you create a trust and place assets into it, you don't own those assets anymore -- they are actually owned by the trust. People don't own a trust in the traditional sense; the person who benefits from the assets held in a trust is called the beneficiary. The assets are provided to the beneficiary according to how the trust was created.

An example of this relationship is when someone places cash assets into a trust. You could write the trust to allow for someone to control those assets in such a way that the person can grow the funds through low-risk investing over the years. Any gains might either be distributed to a beneficiary immediate or added into the trust. The trust's purpose might be to help pay for someone's education. In that case, it could be setup so that the trustee might only remove or disburse funds to pay for or reimburse tuition, books and other identified educational expenses.

That's one of the biggest benefits provided by trusts: You can put conditions on how your money is handled even after you are gone. In some cases, trusts can also provide somewhat of a shelter for certain assets, protecting them from creditors. Trusts also provide some tax relief, though this can become a complicated subject and you never want to dump your assets in a trust to avoid taxes without first talking to an estate planning professional.

Trusts can also help you within your lifetime. You can create a trust and name yourself as a beneficiary to protect your assets or ensure they are functional if you are incapacitated.

Source: CNN Money, "Estate planning: Types of trusts," accessed Nov. 11, 2016

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