A trust is a legal arrangement in which someone agrees to hold and manage property for the benefit of another. With a trust, three parties are involved: the one who transfers the property to the trust (called the grantor), the one who has the responsibility for managing the property (the trustee), and the one for whose benefit the trust is established (the beneficiary).

Because of the historical development of trusts and the state law rules that govern them, the courts are much more likely to give effect to the transfer of broad powers to a trustee than they would to an executor. This means that trusts can be extremely flexible estate planning tools. Unlike your will, which becomes a public document when admitted to probate, trust arrangements — even those that are closely tied into an asset transfer from a will — can be kept from the public eye.

Here, we discuss using trusts to benefit someone without transferring to him or her the full control over the trust assets. (Tax-minimizing techniques using trusts are discussed elsewhere.) You might want to consider using a trust to:

• Give a beneficiary the full lifetime benefit of property (such as the income generated by property, or the right to reside in a residence), with the property to go to another person after the first beneficiary's death. This is often done to ensure that, if a grantor's spouse remarries, his or her children — rather than the spouse's second husband or wife — will ultimately receive the property.
• Restrict the benefits of trust assets to a beneficiary beyond the age of majority. Generally speaking, once a minor who acquires property by a will reaches the age of majority (18 or 21 in most states), he or she will have full, unrestricted use of the property. Maybe you think that a particular beneficiary will not be ready to assume responsibility for property ownership at this age. Restrictions on property use made by will may be difficult or impossible to enforce and may increase probate costs. A trust, however, can provide for partial distributions, and can delay the ultimate distribution to the beneficiary to an age well beyond 18 or 21. For instance, you could set up a trust that would give the beneficiary the income of the trust immediately, and 1/3 of the principal at ages 25, 30, and 35.
• Protect a person "from himself." These type of trusts (commonly called "spendthrift trusts") give the trustee the power to withhold payments to the beneficiary in case the beneficiary has legal judgments or claims against him or her. While the assets remain in the trust, they generally cannot be reached by the beneficiary's creditors. The idea here is to withhold payments to the beneficiary until his or her credit problems have been cleaned up, or until the claims have become unenforceable.
• Influence a person's behavior. You can create a trust that gives your trustee broad discretionary powers to decide when distributions of income and principal are to be made to the beneficiaries. In this way, the trustee can hold out the carrot of distributions to the beneficiaries to nudge them in the direction that you want them to go (such as providing for a distribution of property when the beneficiary has been drug or alcohol free for a specified time). Although the courts generally will give you more latitude in setting conditions in a trust document than they would in a will or a document of title, a court can still refuse to enforce a trust provision that it finds to be against public policy. Further, because a trustee may be held personally liable if the trustee is determined to have breached a fiduciary duty regarding the trust property — such as paying, or failing to pay out, distributions — you may find it difficult to get a qualified individual or corporate fiduciary who will be willing to serve as trustee for a trust having such discretionary powers. And if you do find such a trustee, you can expect the fee charged to be larger than for some other types of trusts.

In summary, trusts can offer the flexibility of withholding full property ownership in instances where you want to safeguard the ultimate distribution of the property to another, or where you want to temporarily withhold such full ownership rights. They also can be used to attempt to influence other's behavior, but such uses are not always enforceable.

In any case, don't forget that trust arrangements cost money: money for an attorney to draft them, and yearly fiduciary fees to the trustee for managing the trust property. Be sure that you have good reasons to incur these additional costs before you decide to go the trust route.