A fiduciary relationship in which a trustee holds legal title to property for the benefit of one or more beneficiaries. Created by a settlor who transfers property to the trustee, trusts separate legal ownership from beneficial ownership, imposing strict fiduciary duties on the trustee to manage trust property for the beneficiaries' benefit according to the trust's terms.
A trust is a legal arrangement where you give property to someone (the trustee) to hold and manage for someone else's benefit (the beneficiaries). The trustee legally owns it but must use it only for the beneficiaries according to the trust's rules.
⏱ When you'll encounter this term
- Estate planning to avoid probate
- Providing for minor children or dependents
- Managing wealth across generations
- Asset protection and tax planning
"Mum created a trust, transferred her house and investments into it, named herself as trustee, and named us kids as beneficiaries. While she's alive she manages it. When she dies, my brother becomes trustee and distributes everything to us according to the trust's instructions—no probate needed."
⚖️ Compare: Trust vs Will
Can operate during life. Avoids probate. Remains private. More complex to create. Ongoing management.
Effective at death only. Goes through probate. Becomes public. Simpler to create. One-time distribution.
💡 Why this matters
Trusts can avoid probate, provide for vulnerable beneficiaries, protect assets, and maintain privacy—but they're complex and expensive to set up and maintain. Many people create trusts unnecessarily when simpler alternatives would work. Understanding when a trust is genuinely beneficial versus just adding cost and complexity is essential.
Trusts are powerful tools, but they're not right for everyone.
⚠️ Common mistakes
- Creating a trust but forgetting to transfer assets into it—leaving it unfunded and useless
- Assuming all trusts avoid probate—only revocable living trusts do
- Setting up a trust without understanding ongoing trustee duties and costs
- Not coordinating trust terms with your will, creating conflicting instructions
💡 Did you know?
Trusts date back to medieval England when landowners transferred property to trusted individuals before going on Crusades. The concept of separating legal ownership (trustee) from beneficial ownership (beneficiary) allowed property management during the owner's absence—an idea still central to modern trusts.