A trust is a legal instrument into which assets can be placed in order to provide greater flexibility in asset management or to separate the assets from the current owner for tax or probate reasons. In Indiana, the parties relevant to a trust are the settlor, the trustee, and the beneficiary or beneficiaries. The settlor is the person who puts assets into the trust. The trustee is the person or entity who manages the trust according to its terms. The beneficiary is the person for whom the assets are held.
One of the primary purposes of a trust is to simplify the process of passing assets on the death of the settlor. Trusts typically avoid probate, which means the assets held therein can pass to the beneficiary without the need of court oversight. They are often used in combination with a will. Establishing a trust also allows for flexibility in the way and timing of the distribution of assets. A spendthrift trust, for example, can be used to distribute assets to a beneficiary on a schedule or as-needed, rather than all at once.
The two main categories of trusts are revocable and irrevocable. With a revocable trust, also sometimes called a living trust, the settlor can continue to control trust assets during their lifetime and the assets can be automatically distributed on death. Revocable trusts generally do not have any effect on the tax liability of the settlor, as the settlor still controls the assets.
An irrevocable trust, on the other hand, cannot be changed after establishment and the settlor can no longer control the assets therein. The main advantage of an irrevocable trust is that its beneficiaries are generally protected from the burden of estate taxes. It is not uncommon for high asset individuals to create a will along with revocable and irrevocable trusts as part of a comprehensive estate plan.