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For estate planning purposes, a trust (more formally known as a "revocable living trust") is the setting up of an independent entity that will continue beyond the lifetime of the person who created it. When a person establishes a trust and passes away, the trust continues to exist and carry out the deceased's wishes.

A trust is characterized by three parties. First, the trust document names a "trustee" who is the person or organization that administers the trust. Second, the the trust names "beneficiaries", or the persons or organizations that will benefit from the trust. Finally, the person who creates the trust and deposits their property into the trust is the "settlor".

Once the trust is formed, the assets of the person who formed the trust (the settlor) are poured into the trust. The trust holds the assets; but since the trust is revocable, the settlor retains control of the assets during their lifetime.

Further, a trust gives great flexibility in how the gift is distributed, which is very useful since children are often the beneficiaries of a trust. For example, for children under 18 years of age, it may be wise to have any assets that are earmarked for such children held in trust until the child reaches an appropriate age. In addition, specific directions can be left as to how the trust assets should be distributed before the child reaches the pre-determined age.

For example, one could place specific assets in the trust, such as a stock portfolio, with directions that the income from the portfolio is to be used only for educational purposes until the child reaches the age of 21.

Further, one may designate who should become the new guardian(s) of one's child if something unforeseen happens to the parents.

Why use a trust?
The use of a trust avoids probate because a trust is not subjected to the probate process. As a result, there is no public exposure of the deceased estate, no statutory lawyer's fees, and the process is expedited. Further, a trust can be used to mitigate taxes on the property passed to one's heirs.