Wealthsimple is a whole new kind of investing service. This is the latest installment of our “How To” series, where we lay out smart and easy-to-understand advice on navigating the financial world.

Your first question about trusts is possibly a simple one: Who cares? Aren’t trusts just for people with yachts, or wealthy grandparents who live at Downton Abbey, or, more specifically, those of us who will leave or inherit an estate worth more than $5.49 million? (More on that number later.)

The answer is yes, trusts are really useful to wealthy people. But they can also be useful to people who may not have that kind of money. There are lots of kinds of trusts. And they’re used for lots of different reasons.

So what are trusts? Who are they for? Are they just beneficial to the people inheriting the money or can they be useful for the people who are leaving it? Does a trust replace a will? How much money do you really need to open one?

We spoke to David Warmflash, a New York City estate attorney, to discover the answers to all these questions. And we even cut out all the boring parts.

What, exactly, is a trust? A trust is a mechanism for passing assets from one party to another. That asset can be a home. It can be cash. It can be a portfolio managed by your favorite algorithm-based online investment company that uses a powerful combination of technology and humans to build perfect investment portfolios to help you reach your goals and rhymes with Shmelthshmimple. (You can set one up with us here.)

There’s some terminology to understand. For instance, there are three parties to every trust:

  1. Grantor. This is the person with the assets. He or she creates the rules for the trust — how much of the income, appreciation or principle is paid out and how often.

  2. Trustee. The person who administers the trust portfolio according to the rules laid out by the grantor. The grantor can, and often does, name him- or herself trustee. Otherwise the trustee can be a relative, business associate or another trusted party.

  3. Beneficiary. The person who receives the assets.

Why would you get one? First, it saves money. The simplest reason people put assets in a trust is if their estate is valued at more than – you guessed it — $5.49 million . That’s the maximum amount the government allows an individual to pass on to his heirs without incurring taxes. Anything over that amount is taxed at a whopping 40%.

Another reason people put their assets in trusts is that it can save money on taxes in the short-term. Once you put assets into a trust — depending on what kind of trust it is — they don’t technically belong to you any more. They belong to the trust. So you will not be taxed on any income they generate — interest, dividends, etc. Depending on whether your investments generate a lot of income, that can save some real money.

They’re also really valuable if the beneficiary isn’t necessarily able to handle managing their own money. People often use trusts as a way to designate how your beneficiaries spend their inheritance. This isn’t necessarily because the grantor is a control freak even from beyond the grave, although sometimes that is the case. But it’s more often the case that the beneficiary may not be equipped to handle that money for one reason or another.

Here are a few examples of situations when trusts are useful:

But wait! They’re good for the wealthy in still other ways! According to Warmflash, people in top tax brackets can use trusts to save on income taxes. The process is called income shifting. “Say you’re in a bracket in which you pay 40% income tax. And you have a child who in their early-20s is in the 20% bracket. If you put income-producing assets in a trust for that child so that the income is distributed to them, you’ve effectively reduced your own taxes on that income by 50%.” In other words: the trust pays no income tax because it distributed the money; you pay no income tax because you put the assets in the trust; and your child is taxed at 20% instead of 40%.

Are there different kinds of trusts? Like anything complicated and financial, there are lots of versions of trusts. But one distinction you should know about is that between revocable trusts and irrevocable trusts. What does that mean, you ask? And should I get an irrevocable trust because it sounds cooler? Well, maybe.

An irrevocable trust cannot be changed once it’s established. You form the trust, and poof: that’s it. A revocable trust, on the other hand, can be amended. After you establish the trust, and decide who you’re trusting and with how much, you can change your mind. You could say it’s a trust for people with trust issues.

When would you use a revocable trust? Warmflash gives an example: “Say there’s a wealthy woman who has been divorced and vowed never to remarry. But she’s dated someone for a long, long time — they are virtually married. She could set up a revocable trust so she could leave as much as she wants to him, and still be able to change it if she wants.”

Note: There are other reasons to form a revocable trust. Like if you want to include grandkids who aren’t yet born, etc.

So, you may wonder, why wouldn’t you want to have a revocable trust? Isn’t it better to have the option of changing your mind? There’s a very simple reason. In the eyes of the government, all the assets in a revocable trust are still part of the grantor’s estate. So you don’t get all those lucrative tax benefits — you’ll still be taxed on the income generated by your assets; and your beneficiaries will pay taxes on anything in excess of that $5.49 million.

However, there’s a trick for people who want the flexibility of a revocable trust but some of the tax benefits of an irrevocable one. You can include a clause that converts the trusts from revocable to irrevocable upon the grantor’s death so you avoid estate tax.

Why not get a trust, then? You may wonder if it’s smarter to get a trust instead of a will. One of the reasons to think twice is cost. Wills are standard legal practice. They’re fairly inexpensive. Trusts, on the other hand, can be complicated and can end up costing you thousands of dollars in legal bills to establish. A trust also requires annual compliance fees since there is an Estate and Trust tax return to be filed with the IRS.

One more benefit: you can put the assets that are part of your trust into a smart portfolio at Wealthsimple. It’s easy. After establishing the rules of the trust with your attorney, create a new portfolio with Wealthsimple. Fill out the same questionnaire that you did to create your other Wealthsimple investment portfolios, and you’re done. Just let our technology, and the knowhow of our financial team, grow your money — tax free.

Wealthsimple makes smart investing simple and affordable.