One way to reduce estate taxes and probate court costs is to avoid them. This is why trusts have become so popular. Trusts are an excellent estate planning and property management tool. They are quite simple and inexpensive to create and are accessible to everyone.
Private citizens create trusts for many reasons. One particular reason many people create a trust is to prevent certain assets or capital from going to probate court when you die. One way to do this is by setting up a trust in favor of a trustee who, at the time the trust is set up, is not in a position to manage the assets assigned to him or her, either because he or she is a minor, or because he or she has been declared legally incapacitated. For example, a father can create a trust in favor of his three minor children, as long as the funds transferred to the trustee are used to finance the future university studies of the children in equal parts. Another example would be the case in which a parent creates a trust in favor of his autistic son to cover his future special needs, called a special needs trust, for the personal and medical care of the child.
In simple words, a trust is a legal arrangement made between three people, broadly speaking. The owner of the trust is called the settlor. The person to whose name the settlor is transferring the property is the trustee. The trustee has an obligation to manage and protect the assets for the benefit of a third party, the trustee. Instead of people, there could be an institution. There are two broad categories or types of trusts: revocable living trust and testamentary trust. Living trusts are those created to operate during the life of the settlor. The testamentary trust begins to function when the settlor dies.