What is a Trust?
A trust agreement is a document that spells out the rules that you want followed for property held in trust for your beneficiaries. Common objectives for trusts are to reduce the estate tax liability, to protect property in your estate, and to avoid probate and maintain privacy.
Think of a trust as a special place in which ordinary property from your estate goes in and, as the result of some type of transformation that occurs, takes on a sort of new identity and often is bestowed with super powers: immunity from estate taxes, resistance to probate, and so on.
Suppose that you want to set up a trust. Just like with a cooking recipe or building something in your garage workshop, you need to make sure you have everything you need before you start.
The Seven Basic Ingredients
- Trustor/Settlor: Person setting up the trust. The person is commonly known as the trustor, though you may sometimes see the terms settlor or grantor.
- Objective of the Trust: You use different types of trusts to achieve a variety of specific estate-planning objectives. You can use some trusts for a single estate-planning objective, while others help you achieve more than one goal.
- Specific Kind of Trust: Trusts come in many different varieties. Regardless, when you’re setting up a trust, you need to decide what type of trust you want and make sure that you follow all the rules for that particular type of trust to make sure that it’s proper, legal and carries out your intentions.
- Property: After you place property into a trust, that property is formally known as trust property.
- Beneficiary: Just like with other aspects of your estate plan (your will, for example), a trust’s beneficiary (or, if more than one, beneficiaries) benefits from the trust in some way, usually because the person or institution will eventually receive some or all of the property that was placed into trust.
- Trustee: The person in charge of the trust is known as the trustee. The trustee needs to understand the rules for the type of trust he or she is managing to make sure everything in the trust stays in working order
- Rules: Finally, some of the rules that must be followed are inherently part of the type of trust used, while other rules depend on what is specified in the trust agreement. You will find still more rules in state and federal law.
What is a Living Trust?
A trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust.
A “living trust” (also called an “inter vivos” trust) is simply a trust you create while you’re alive, rather than one that is created at your death.
Different kinds of living trusts can help you avoid probate, reduce estate taxes or setup long-term property management.
Advantages to Having a Trust
- You Decide How Your Property and Assets are Distributed
- Significantly Less Cost Than Probate
- Easy/Quick Settlement (120 - 180 days)
- Downside: No Court Supervision