The word trust is applied to all types of relationships, both personal and business, to indicate that one person has confidence in another person.
For our purposes, a trust is a legal device for the management of property. Through a trust, one person (the grantor or trustor) transfers the legal title to property to another person (the trustee), who then manages the property in a specified manner for the benefit of a third person (the trust beneficiary). A separation of the legal and beneficial interests in the property is a common denominator of all trusts.
In other words, the legal rights of property ownership and control rest with the trustee, who then has the responsibility of managing the property as directed by the grantor in the trust document for the ultimate benefit of the trust beneficiary.
A trust can be a living trust, which takes effect during the lifetime of the grantor, or it can be a testamentary trust, which is created by the will and does not become operative until death.
In addition, a trust can be a revocable trust, meaning that the grantor retains the right to terminate the trust during lifetime and recover the trust assets, or it can be an irrevocable trust, meaning that the grantor cannot change or terminate the trust or recover assets transferred to the trust.
Trusts can be used:
- To provide management of assets for the benefit of minor children
- To assure the grantor that children will benefit from trust assets, but will not have control of those assets until the child is older
- To manage assets for the benefit of a special-needs or disabled child, without disqualifying the child from receiving government benefits
- To provide for the grantor’s children from a previous marriage
- As an alternative to a will (a revocable living trust)
- To reduce estate taxes and, possibly, income taxes
- To provide for a surviving spouse during his/her lifetime, with the remaining trust assets passing to the grantor’s other named beneficiaries at the surviving spouse’s death
As you can tell from the description, trusts are complex legal documents and are not appropriate in all situations. Therefore, you should seek qualified legal advice if you think a trust would help your overall financial situation.