What is a Trust?
A trust is a legal relationship in which one person or trustee holds property for the benefit of him or herself or another, known as a beneficiary.
A Trust generally involves at least three people: (1) the person who creates the trust, known as the grantor or settlor; (2) the person who holds and manages the property for the benefit of the grantor or another, known as the trustee; and (3) the person who is entitled to the benefits, known as the beneficiaries.
How does a Trust work?
Essentially, a Trust is an agreement between the grantor and the trustee. It is created through a trust agreement or a trust declaration. The grantor makes certain property available to the trustee, for certain purposes. The trustee agrees to manage the property in the way the grantor wants, as specified in the trust agreement. Throughout the entire trust arrangement, the trustee has legal title to the trust property, while the beneficiaries retain what is commonly known as equitable title or the right to benefit from the property specified in the trust.
Should you have a Trust?
Whether or not you should have a Trust depends on the purpose of the Trust and the size of your estate. You may want to consider a Trust if you fall in to one or more of the following categories:
- Parents with young children, who want to provide for their futures, may create a living trust for their benefit.
- People with beneficiaries who need help managing property or are unable to manage property well.
- People who own property that is hard to divide, such as a business or income producing asset.
- People who want to control their property after death.
- People who are concerned about estate taxes, which permits you to make tax-free gifts.
What is the purpose of a Trust?
A Trust can do almost anything as long as it is not illegal and against public policy. Trusts come in many forms. Some help with reducing estate taxes, others fund the education of children and grandchildren, or provide for people with disabilities or those who might have trouble managing their own affairs; and still some trust fund charities. Also, Trust can provide protection from your beneficiaries’ creditors.
There are several different kinds of Trusts:
- Revocable Trusts – a Trust that can be changed, or even terminated, at any time by the grantor.
- Irrevocable Trusts – a Trust that cannot be changed or terminated before the time specified in the trust, but savings in taxes may offset the loss of flexibility.
- Charitable Trusts – a Trust created to support charitable purposes.
- Discretionary Trusts – a Trust designed to permit the trustee to distribute income and principal among various beneficiaries or to control the disbursement to a single beneficiary, as needed.
- Wealth Trusts – a Trust that can last for a number of generations, which assist in passing down wealth.
- Living Trusts – a Trust that enables you to put your assets in a Trust while you are still alive.
- Special Needs Trust – a Trust established for people with disabilities who want to keep their government benefits.
- Spendthrift Trust – a Trust that is set up for someone whom the grantor believes will not be able to manage their own affairs.
- Support Trusts – a Trust that directs the trustee to spend only as much income and principal as may be needed for the education and support of the beneficiaries.
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