What Is a Trust? Types, Parties & How It Works (2026)
A trust is a legal arrangement where one person (the grantor) places assets under the management of another (the trustee) for the benefit of someone else (the beneficiary). Unlike a will, a revocable living trust is created during your lifetime, can manage your affairs if you become incapacitated, and can pass assets to heirs without probate. This guide explains how a trust works, the key roles, the main types, and what “funding” a trust really means.
What is a trust, in plain terms?
A trust is a three-party relationship: the grantor (also called the trustor or settlor) creates the trust and contributes assets; the trustee holds and manages those assets under a fiduciary duty to act in the beneficiaries’ best interests; and the beneficiaries receive the benefit. The American Bar Association explains that a living trust “can help you avoid probate” and, if you become incapacitated, lets a successor trustee manage your assets. Source: American Bar Association — Revocable Trusts
Revocable vs. irrevocable trusts
A revocable trust can be changed or dissolved by the grantor while competent — you keep control, so the assets remain in your taxable estate and it does not reduce federal estate tax. An irrevocable trust generally cannot be changed once funded; because you give up control, its assets can be removed from your taxable estate. The ABA is explicit that revocable trusts “do not help you avoid estate tax because your power to revoke or amend them causes them to continue to be includable in your estate.” Source: American Bar Association
Compare the two side by side in Revocable vs. Irrevocable Trust.
The funding trap: a trust only works if you fund it
Creating a trust is step one; retitling your home, bank accounts, and investments into the trust’s name is step two. If you forget, those assets fall outside the trust and may still need probate. The standard fix is a pour-over will that catches anything left outside the trust. The ABA recommends most people use a will and a trust together.
Does a trust reduce estate tax?
Only an irrevocable trust can move assets outside your taxable estate. For 2026, the federal estate tax exemption is $15,000,000 per person (indexed for inflation beginning in 2027 under the One Big Beautiful Bill Act). Assets inside a revocable trust are still counted toward that same exemption. Source: IRS — 2026 inflation adjustments
A will or a trust — which do you need?
For most families with meaningful assets, the answer is both: a pour-over will plus a funded revocable living trust, coordinated with beneficiary designations. Start a guided plan in the Estate Plan Builder, or see the full comparison in Wills vs. Trusts.
Disclaimer
This article is informational only and is not legal advice. Trust formalities, funding rules, and tax treatment differ by state and change over time. The 2026 federal estate tax exemption figure comes from the IRS and is subject to future legislative change. Before acting, consult a licensed estate attorney or CPA in your state. The figures in this article were retrieved on August 14, 2026.
Sources & citations
American Bar Association — Revocable Trusts: americanbar.org
Internal Revenue Service — 2026 tax year inflation adjustments (basic exclusion amount $15,000,000 for decedents dying in 2026): irs.gov