A trust is a relationship in which an individual transfers property to a trustee, who then becomes responsible for managing that property for the benefit of a third party, called the beneficiary. Trust property may include cash, stocks, bonds, and real estate. The trustee may be one or more individuals, or a corporation, such as a bank. The beneficiary can be anyone - even the person who creates the trust.

Usually, there is a document which directs the trustee on how to manage the property and how to distribute the income and principal. A trust can be created during life, in which case it is called a living trust. Or, it can be a part of a will and come into being at the time of death.

A trust is a legal entity with specific purposes. One of its uses is to control property for the benefit of minor children, defined in this state for most purposes as persons under the age of 18. They cannot legally transact their own financial affairs, so their property must be managed by guardians who, if necessary, will be appointed and supervised by the court.

Trusts for minor children are often contained in the wills of their parents - set up, for instance, to receive the proceeds of life insurance policies. By creating a trust, parents can choose the trustee and express their intentions as to the management and distribution of the property. Another advantage of a trust is greater flexibility in managing the property than a guardian would have.

A trust may be used to provide separate management for a person's assets during life. Usually, those who create this kind of trust receive the income produced by the assets. It is usually revocable and can be changed or canceled at any time.

Trusts are often designed to reduce taxes. For example, you can establish a trust in your will to extend through your children's lifetimes and may thus reduce or eliminate the taxes on the children's estates. Then, too, a trust in a will may be used both to reduce estate taxes for a surviving spouse and save in income taxes for the beneficiaries, as well. Living trusts can reduce taxes and save in income taxes for the beneficiaries, as well. Living trusts can reduce taxes by shifting income from a high-bracket taxpayer to one in a lower bracket. Other options include tax savings combined with donations to charity.

There are, however, precautions. Unless a trust is expertly established, the eventual effect might be an increase in taxes, a loss of assets, or both. That is why it is essential, when considering a trust, to see an attorney familiar with such matters.