Trusts come in all shapes and sizes and can be crafted to fit your specific needs.
The basic idea behind a trust is to separate the "legal" title from the "equitable" title. That is just a very legal way of saying property that is for the benefit of a beneficiary is placed in the hands of another; the trustee. Trusts can be divided into two major categories; revocable living trust and irrevocable trust. Each is used to accomplish different objectives at the outset, but the main distinction is how they are treated under the law.
A revocable trust is self settled, meaning that a person creates a trust but maintains control over the assets held in trust until an event occurs that shifts the entitlement of the assets to another beneficiary. Generally, the transition happens when the person settling the trust dies. As the name implies, a person creating a revocable trust may revoke the trust prior to death. The important aspect of a revocable trust is that the property is treated as the person who settles the trust for purposes of taxation, and is treated as their assets under their social security number.
An irrevocable trust, on the other hand, may not be revoked, and creates a separate entity, similar to a business entity. Irrevocable trusts are more complicated, but provide great legal mechanisms for asset protection and Medicaid planning.
Here are just a few things you can do with a trust:
Yes. While the trust document outlines the specifics of the trust, the trust must be funded to be created. Typically after the drafting and execution of the trust document, a person will also execute further paperwork required to transfer property into the name of the trust as which the person intends to be part of the trust assets.
There can be, and you should always consult with a tax professional to determine any tax consequences. While a revocable self settled trust is still treated as the individuals money and assets, an irrevocable trust is an independent entity. Gift tax, the unified gift/death tax exemption, and other tax consequences should always be explored before funding an irrevocable trust.
Not at all. Many people use simple living revocable trusts in their estate plans to ensure that another person can access their funds in a time of medical incapacity, pay for end of life care, and to avoid the complexities of estate administration. Some trusts can be fairly simple to draft and establish so long as the back end distribution goes directly to a beneficiary upon death. For example, a simple living trust that names a single child or spouse as the beneficiary of all trust assets upon death.