If you haven’t looked around lately, you may be surprised to know that much of the wealth in this country is held in trust. There are various reasons for this, such as (a) continuity of management and control; (b) avoidance of probate; and (c) succession planning, to name just a few.

For those of you using irrevocable trusts, there are added advantages, especially tax planning advantages.

It doesn’t matter whether your trust is a straightforward revocable living trusts or one of a more complex variety, such as the irrevocable life insurance trust (ILIT) or charitable remainder trust (CRT), you will need to answer some basic questions before you can say with certainty that your trust will work as planned.

You are the maker of your trust. You may be called a Settlor, a Grantor or even a Trustor. The name is immaterial. What is important is that you are the one creating the instrument and placing money or property into it. You’ll note this is a two-step process. You have to "create" the trust and then you have to "fund" the trust. The first part is the simpler of the two; the latter is where most problems arise.

Most of you have established your trust (or are thinking about establishing trusts) for two main reasons. The first purpose is to preserve your assets and the second is to manage them. A properly crafted trust will go a long way toward meeting each of these objectives.

We know who you are. As the Settlor, your job is done once you properly form the trust and fund it with whatever assets it is to own. Now we come to the other important player in the trust scenario, the Trustee. The Trustee (which can be you) can be a person or persons or an entity (often a bank) and is the manager or overseer of the trust assets–the property you have placed in your trust. The Trustee is responsible for establishing realistic investment goals and policies, while making sure no trust or legal restrictions under the law are violated.

If, for example, you have established a charitable remainder trust, you won’t want your Trustee to invest in participating partnerships or assets with debt since this could cause the trust to lose its tax-exempt status.

Trustees must decide how much risk they (or you, as the Settlor) are willing to accept. Most of us want maximum return on our investments, but with minimum risk. This is where the balancing comes into play. Usually the older we are, the less risk we will tolerate and the more we may have to depend on income from the trust to meet our current living needs. We probably won’t want to risk too much in the volatile stock market of recent years.

Given recent market performance, your Trustee will want to know how long he will be managing your trust property. If you are elderly, there will be less time to recoup from negative market trends, so risk will be held to a minimum. If you are in your 20s, the Trustee has more time to balance out return on investment and can take a more aggressive stance. In addition, you and your Trustee both need to be aware of the "prudent man" or "prudent investor" rule that limits investment decisions to conservative assets. You can waive these restrictions in the Trust agreement, but do you want to do this?

Being a Trustee isn’t easy. Besides worrying about risk management and meeting the needs of the beneficiary, the Trustee also has to worry about the tax implications of his actions.

Yes there are. Trusts not only help preserve and manage assets, but they do it in private. Unlike wills, which are admitted to probate and become public documents, trusts avoid the publicity of court accountings. And if you have real property in more than one state, you can avoid the time and expense of multi-state probate proceedings by placing all your assets into a trust.

There is another advantage. Wills only take effect at death. Many clients are more concerned with disability or incompetence, than with death. A trust (along with properly prepared powers of attorney and an advance directive for health care) can eliminate the need for a court appointed conservator or guardian.

A well-drafted trust offers other benefits. It can help protect unprepared heirs from making mistakes by leaving money management decisions in the hands of your Trustee, who you have advised of your intentions. A trust is also more efficient than a court-administered probate in settling debts, paying expenses and transferring assets to their ultimate recipients.

Some of you may want the security, permanence and continuity offered by a corporate Trustee, such as a bank or trust company, which is usually held to a higher standard for financial accountability and investment expertise. A corporate Trustee may also be a good idea if there is a risk of family disharmony. An independent and impartial third party Trustee will be less likely to succumb to pressure from heirs and is better equipped to defend trust provisions which might come under attack.

At the same time, individual Trustees may take more of a personal interest in the family and may be better suited to transition a family business to the next generation. He or she might possess special investment or business expertise in your particular business area that would be difficult to find in a corporate Trustee.

A trust may not solve every problem. It is only as good as the lawyer who drafted it and the lawyer’s understanding of your needs. Even if well worded, it won’t protect assets that aren’t in it. A "cookie cutter" trust may fail to address your particular issues. Your Trustee may make a mistake or have a fiduciary lapse. Finally, even a good estate plan needs to be reviewed regularly to be sure it reflects your current family and financial reality. A stale trust may do more harm than good.

If you have a trust, don’t put it on the top shelf and forget about it. If you are thinking about doing a trust, be sure you consult with someone who is knowledgeable and can prepare an instrument that is tailored to fit your situation.