A trust is basically an estate planning tool but it is often used by entrepreneurs to protect assets from creditors in the event of insolvency. They have been abused in the past, which is why courts are looking more closely at these entities,

Living trusts

However it is still a valid tool in a holistic financial plan. A living trust (otherwise known as an Inter Vivos Trust) is one of the most significant achievements in Anglo-Dutch law, rivalling the concept of corporations in importance. Like a corporation, a trust is a kind of 'legal fiction' which takes on many of the rights and attributes of a person.

The most basic definition of a trust is the holding of real or personal property for the benefit of the persons for whom the trust was created. It is a legal structure that’s been designed to accomplish several desirable goals, one of which is avoiding executorship.

How it works:

A living trust is a legal entity you create to take ownership of money or property. As its creator, you are the grantor. You appoint trustees; which should be two other people and yourself, or a financial institution.

As grantor, you decide who will be the manager. You can either appoint someone you trust or do it yourself. The choice is entirely up to you, because the key issue of a trust is control.

The advantages are numerous, and include:

• A living trust separates your major assets from the executorship process.
  
• All your liquid funds are available to the trustees and therefore your family.
  
• Instead of needing to change your will each time your assets change, you can use a ‘pour-over’ will to pour your remaining assets into the trust — assets which were not owned by the trust at the time of your death.
  
• Your trustees (usually you, your spouse and your financial advisor or lawyer) retain complete control throughout the whole process.
  
• A trust avoids contested wills. If anyone makes claims upon your estate, the control remains in the hands of the other trustees and your heirs.
  
• Due to the continuity of assets and property management, your heirs enjoy uninterrupted income.
  
• Your spouse and heirs avoid the emotional trauma, aggravation and frustration that serves no useful purpose.
  
• Privacy: your assets are not advertised at the City Hall or elsewhere.
  
• If you become incapacitated, the trust continues to handle your assets, avoiding conservatorship.
  
• A trust protects your children, and ensures your wishes are carried out after your death without being subject to outside attack. It lets you control your wealth while you are alive and afterwards, through written instructions to your successor trustees.
  
• A trust offers lawsuit protection in some circumstances.
  
• It is also a perfect tool to let someone else become involved in the management of your investments if you wish to delegate those duties to someone you can trust.
  

This is intended to draw your attention to the main benefits of a living trust. There are other benefits, especially if you are a small business owner. A good trust lawyer will be able to help you put the right structure in place for your needs.