What is a trust?
A trust is real or personal property held by one party for the benefit of another or oneself. A trust can be created for any purpose as long as it is not illegal or does not go against public policy. A trust must have a specific purpose, a designated beneficiary and specific duties for the trustee as designated by the grantor.
Every trust has the following:
- The person creating the trust, called a grantor, trustor, settlor or maker.
- The party the grantor names in the trust to care for and manage the trust property, called a trustee. There may be one or several trustees. The trustee may be an individual or a corporation.
- The party for whose benefit the trust was created is called the beneficiary. The beneficiary receives the income from the trust.
The grantor, trustee, and beneficiary may be the same person, but as far as the trust is concerned, they are three separate entities.
There are two types of trusts: a personal trust and a testamentary trust.
A personal trust is the most common type of trust and is effective during the grantor’s lifetime and may continue after his or her death.
Personal trusts are further divided into either: 1) Under Declaration of Trust (U/D/T) meaning the grantor and the trustee are the same person and the grantor controls the trust assets, and 2) Trust Under Agreement (U/A) meaning the grantor and the trustee are different persons and the trustee controls the trust assets.
A personal trust can also be set up by the grantor to be irrevocable or revocable. An irrevocable trust is one that the grantor may not rescind or cancel. A revocable trust is one that the grantor has the option of rescinding or canceling.
A testamentary trust is created under the grantor’s will. The trust does not take effect until the grantor is deceased and a legal representative is appointed through the court.
Personal trusts are a very useful tool for the management and distribution of family assets. There are two types of trusts: a revocable living trust that is set up during your lifetime or a testamentary trust that is established by a will.