What is a Trust?
Trusts are estate-planning tools that can replace or supplement wills, as well as help manage property during life. A trust manages the distribution of a person's property by transferring its benefits and obligations to different people.
A trust can be created during a person's lifetime and survive the person's death. A trust can also be created by a will and formed after death. Once assets are put into the trust they belong to the trust itself, not the trustee, and remain subject to the rules and instructions of the trust contract.
Put another way, a trust is a right in property, which is held in a fiduciary relationship by one party for the benefit of another. The trustee is the one who holds title to the trust property, and the beneficiary is the person who receives the benefits of the trust.
Estate and probate terms can seem foreign and confusion. For relevant legal definitions specifically related to estates and trusts, visit the Estate and Probate Law Glossary in the FindLaw Legal Dictionary.
There are many different types of trusts, but the basic types are revocable and irrevocable.
Revocable Trusts are created during the lifetime of the trustmaker and can be altered, changed, modified or revoked entirely. Often called a living trust, these are trusts in which the trustmaker transfers the title of a property to a trust, serves as the initial trustee, and has the ability to remove the property from the trust during his or her lifetime.
If ownership of assets is transferred to a revocable trust during the lifetime of the trustmaker so that it is owned by the trust at the time of the trustmaker's death, the assets will not be subject to probate. Typically, a revocable trust evolves into an irrevocable trust upon the death of the trustmaker.
An Irrevocable Trust is one which cannot be altered, changed, modified or revoked after its creation. Once a property is transferred to an Irrevocable Trust, no one, including the trustmaker, can take the property out of the Trust. It is possible to purchase Survivorship Life Insurance, the benefits of which can be held by an Irrevocable Trust. This type of survivorship life insurance can be used for estate tax planning purposes in large estates, however, survivorship life insurance held in an Irrevocable Trust can have serious negative consequences.
Charitable Trusts are trusts which benefit a particular charity or the public in general. Typically Charitable Trusts are established as part of an estate plan to lower or avoid imposition of estate and gift tax. A charitable remainder trust (CRT) funded during the grantor's lifetime can be a financial planning tool, providing the trustmaker with valuable lifetime benefits. In addition to the financial benefits, there is the intangible benefit of rewarding the trustmaker's altruism as charities usually immediately honor the donors who have named the charity as the beneficiary of a CRT.
As you can see, trusts can be quite involved and complex. Be sure to contact an experienced Trusts Attorney to learn about the legal rights and obligations of a trust.