Trusts

Trusts

A trust is a fiduciary arrangement whereby one party, known as the trustor or grantor, transfers assets to a second party, called the trustee, who manages those assets on behalf of a third party, referred to as the beneficiary. Trusts are commonly used in estate planning to control the distribution of assets, minimize estate taxes, avoid probate, and provide for minor children or individuals with special needs.

The key components of a trust include:

1. Trustor: The individual who creates the trust and transfers assets into it. The trustor establishes the terms of the trust, determining how assets are to be managed and distributed.
2. Trustee: An individual or institution designated to manage the trust assets according to the trustor’s instructions. The trustee has a fiduciary duty to act in the best interests of the beneficiaries and must adhere to the terms set forth in the trust document.
3. Beneficiary: The person or entity that benefits from the trust. The trust document specifies who the beneficiaries are and how and when they will receive distributions from the trust.
4. Trust Document: A legal document that outlines the terms, conditions, and provisions of the trust, including how it will be managed, the powers of the trustee, and the rights of the beneficiaries.

Types of Trusts include:

• Revocable Trust: A trust that can be altered or revoked by the trustor during their lifetime. This flexibility allows the trustor to change beneficiaries or modify terms as their circumstances change.
• Irrevocable Trust: A trust that cannot be changed once established, except under certain circumstances. This type of trust often provides tax benefits and asset protection since the assets are no longer considered part of the trustor’s estate.
• Testamentary Trust: A trust that is created through a will and goes into effect upon the trustor’s death. It is often used to manage assets for minor children or dependents.
• Living Trust: A trust established during the lifetime of the trustor that allows for the management of assets while the trustor is alive and the distribution of assets upon their death.

Example: If John establishes a revocable trust and transfers his house and investments into it, he can serve as the trustee and maintain control over the assets. Upon his death, the trust will become irrevocable, and the assets will be distributed to his beneficiaries, according to his wishes outlined in the trust document, without going through probate.