What Is A Trust?

Think of a trust as a holding pen, a place where you put your assets before they are released to the people or organizations that you designate to eventually receive them. A trust is a legal entity and so are you. Because you and the trust are separate legal entities, anything you transfer from you to the trust becomes property of the trust. The trust then holds the property for your benefit, or for the benefit of those whom you designate.

 

A trust consists of four components:

  1. The grantor (also known as the Creator, Donor, or Settlor) who creates the trust.
  2. The beneficiaries, who receive the benefits (income and/or principal) of the trust. The grantor can also be a beneficiary.
  3. The assets, which are the properties transferred to the trust.  The trust property is also called the trust corpus, trust res, or trust principal
  4. The trustee, who is the person or entity that manages the trust’s assets and distributes the property according to terms established by the grantor. The grantor can also be the trustee, at least while the grantor is alive.

A trust is a separate legal entity that splits full title in the trust property into legal title and equitable title.  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.

 

The grantor can create a trust during life, which is called an inter vivos trust, or in death, which is called a testamentary trust.  The testamentary trust is set up as designated by a Will and does not come into being or begin to function until after the death of the grantor.  A grantor may also create a revocable trust, which means that the grantor can revoke the trust at any time during his or her life and regain full title to the trust property.  Conversely, a grantor may create anirrevocable trust, which cannot be changed after created.  By definition, a testamentary trust is irrevocable.

Most common reasons to create a trust:

  1. Financial Management for the grantor’s benefit
  2. Will substitute to avoid probate and create privacy
  3. Give financial support to others without granting them control over the trust assets
  4. Provide financial support to a surviving spouse while preserving assets for children
  5. Provide financial support for minors or incompetent individuals
  6. Reduce or eliminate estate taxes
  7. Provide for a charity

For more information on trusts, please contact Nic Wenner at 612-355-2202.