Black’s Law Dictionary defines a trust as “An equitable or beneficial right or title to land or other property, held for the beneficiary by another person, in whom resides legal title or ownership, recognized and enforced by courts of chancery.”
Okay, ridiculous legalese aside, a trust is simply an agreement, between two parties, regarding assets. The first party, the trustor (also called the grantor or settlor), creates the trust and puts assets into the trust. The second party, the trustee, agrees to manage the assets held in the trust for the benefit of – you guessed it, the beneficiaries identified within the trust document. And on a very basic level, that’s all there is to it.
But of course, trusts can be very lengthy and quite complicated. A good trust must meet the trustor’s goals, account for the trustor’s specific assets, and be set up to achieve favorable legal, tax, and asset protection results for the beneficiaries.
The trustee manages the assets per the terms written into the trust. The trustee also distributes the assets, or a portion thereof, to the beneficiaries when and how the trust specifies. The trustee takes on a fiduciary duty which mandates he or she follows the terms of the trust and carries out the wishes of the trustor.
There are many different types of trusts but probably the most common is the revocable living trust (“RLT”). Why? Well because one person can serve in all three roles (trustor, trustee, and beneficiary) during their lifetime.
For example, Peter could set up a trust, put his assets into the trust, manage those assets, and also benefit (receive income) from those assets. Peter can plan to transfer those assets to his minor son, Paul when he dies. To accomplish this Peter would name his sister, Mary, as his successor trustee. May would then manage the trust assets for the benefit of Paul, until Paul is old enough to manage the assets for himself.
Pretty cool, huh? But why would someone want to go to the trouble of setting up a trust? Well, because the trouble of setting up a trust is generally minuscule compared to the mess, expense, and yes, trouble left for loved ones when someone dies without a trust. I’ll go into more detail regarding the benefits of a trust in my next article. In the meantime, I wish you and yours a wonderful holiday filled with lots of love and laughter.
Dedicated to empowering your family, enhancing your wealth and entrenching your legacy,