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What is a trust?
A Trust is a legal entity that can hold title to property for the benefit of one or more other persons or entities. The person who sets up the trust is called the Creator (also known as the Grantor, Trustor, Donor, or Settlor).
The person or entity that controls the Trust and is responsible for managing the Trust assets is called the Trustee. The Trustee holds the legal title, but not the full title, to the property that is in the Trust. This means that the Trustee can only use the assets and proceeds from the Trust property for the benefit of the people the Trust is set up to benefit, never for his or her own profit.
The persons who are intended to benefit from the Trust are known as Beneficiaries. Beneficiaries own what is called the equitable title to the property held by the Trust. This means that they have a right to have the assets used for their benefit in the way directed by the Trust provisions.
These parties to the Trust need not be different people. It’s possible in most states to be all 3 at once. Historically courts concluded that there was no need for a Trust when the Trustee was also the Beneficiary. (The legal and equitable titles were said to have "merged.") However, now, in most states, if it is done right, a Trust Creator may establish a revocable Trust, serve as the initial Trustee and be able to obtain immediate benefits as a Beneficiary from Trust property.
The property that is transferred to a Trust becomes the Trust estate (also called the Trust corpus, Trust res, or Trust principal). A Trust estate consists of all of the property, rights, and obligations that are transferred to the Trust.
The Trust estate is managed in accordance with the terms and conditions of the document creating the Trust, which is called the Trust agreement or declaration of Trust. This document sets out the purpose of the Trust, the identities and powers of the Trustees, the names of the Beneficiaries, how the Trust assets should be managed, and how they should be distributed to Beneficiaries.
Trusts can be “inter vivos,” (set up during the Grantor’s lifetime). This means that the Trust comes into being and functions while the Grantor is still alive. A Testamentary Trust is set up by a Will and does not come into being or begin to function until after the death of the Grantor.
Trusts are also revocable or irrevocable. This means just what it sounds like; a revocable Trust can be revoked and the Grantor can reclaim the Trust assets. An irrevocable Trust can’t be revoked once it has been set up. The Grantor can arrange to be the Beneficiary of an irrevocable Trust during the Grantor’s lifetime, but he or she cannot take the trust assets back again. |
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