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Understanding Trusts & How They Work
September 29, 2026 3 Minutes

Understanding Trusts & How They Work

Learn how trusts work, the differences between revocable and irrevocable trusts, and the potential benefits and drawbacks to consider when planning your legacy.

Summary

  • A trust lets you set rules for how assets are managed and distributed to beneficiaries.
  • A trustee manages the trust according to the terms established by the person creating it, known as the grantor.
  • Revocable trusts generally offer more flexibility during the grantor’s lifetime, while irrevocable trusts are much harder to change.
  • Trusts can offer advantages such as avoiding probate and controlling when assets are distributed, but they can also be complex and costly to establish and maintain.

A trust can help you define how certain assets should be managed and distributed, including after your death. While trusts and wills can both be part of planning for the future, a trust works differently because assets are transferred into the trust and managed according to its terms.

How a Trust Works

The person who creates a trust is called the grantor. The grantor transfers assets, such as money or property, into the trust and establishes instructions for how and when those assets should be distributed.

The people or organizations that receive assets from the trust are called beneficiaries. A beneficiary could be a family member, school, charity or another entity. The grantor may set conditions for distributions, such as providing funds at a certain age or for a specific purpose.

A trustee is responsible for managing the trust and following its terms. Depending on the type of trust, the grantor may serve as trustee or appoint someone else to manage it.

Two common types of trusts are revocable and irrevocable trusts.

Illustration of a person handing a key to another.

Revocable Trusts

A revocable trust, also called a revocable living trust, is generally created and used while the grantor is living. The grantor often serves as trustee and can usually change the trust’s terms or move assets into and out of the trust.

Because the grantor retains control of the assets while the trust is revocable, this type of trust offers flexibility. The grantor can also name a successor trustee to take over management of the trust after the grantor dies. At that point, the trust becomes irrevocable.

That flexibility can be useful, but a revocable trust does not provide all of the same potential protections or other benefits associated with certain irrevocable trusts.

Irrevocable Trusts

An irrevocable trust is much more difficult to change after it has been established. When assets are transferred into this type of trust, the grantor generally gives up ownership and control of those assets according to the trust’s terms.

That difference can affect how the assets are treated for tax purposes and may provide certain protections from creditors or legal claims. Some irrevocable trusts may also be structured to address estate-tax considerations.

Because these arrangements can have significant legal and tax consequences, professional guidance can be especially important when considering an irrevocable trust.

Benefits & Drawbacks of Trusts

A trust can provide more control over how and when assets reach beneficiaries. It can also help assets held in the trust avoid probate, the legal process used to validate a will and administer an estate.

Other potential benefits include:

  • Setting specific conditions for when beneficiaries receive money or property.
  • Directing funds toward particular purposes, such as education or buying a home.
  • Keeping the terms and distribution of trust assets more private than a will, which becomes part of the public probate record.

Trusts also have potential drawbacks:

  • Establishing and maintaining a trust can be expensive.
  • Creating and administering a trust can be complicated.
  • Restrictions written into a trust can limit a beneficiary’s access to funds if circumstances change.
  • Deciding Whether a Trust Fits Your Plans

Whether a trust makes sense depends on your assets, goals, beneficiaries and the level of control or flexibility you want. The type of trust you choose can also have important legal and tax implications.

If you are considering a trust as part of your estate or legacy plan, a qualified professional can help you understand the available options and how the terms of a trust could affect you and your beneficiaries.