Trust

Detailed Explanation

Trusts are legal entities created to manage assets, ensure they are distributed according to the wishes of the trustor (the person who creates the trust), and provide legal protection for those assets. Trusts can be established for various purposes, including estate planning, tax planning, and asset protection. 

In banking, trusts are often used to manage substantial assets, handle estates, and facilitate charitable giving. Trusts involve three key parties: the trustor, the trustee, and the beneficiary. The trustor establishes the trust and transfers assets into it; the trustee manages the trust’s assets according to the terms set forth in the trust agreement; and the beneficiaries receive the benefits from the trust, such as income or other assets.

Trusts can be classified as either revocable or irrevocable. Revocable trusts can be altered or terminated by the trustor during their lifetime. In contrast, irrevocable trusts, once established, cannot generally be changed, providing greater protection from creditors and legal judgments but less flexibility.

Example

Maria sets up a trust to manage her wealth and provide for her children’s education and well-being after her passing. She transfers her investment portfolio into the trust, appoints a bank as the trustee to manage the investments, and names her children as beneficiaries. According to the trust agreement, the trustee will disburse funds to cover her children’s educational expenses until they reach a certain age, after which the remaining assets will be distributed among them.

Key Articles Related To Trusts

• Trust & Will Review: Simplified Estate Planning
• Mama Bear Legal Forms Review: Pros And Cons

Related Terms

Beneficiary: The person or entity that receives the benefits from a trust, insurance policy, or other contracts.

Estate Planning: The process of arranging for the management and disposal of a person’s estate during and beyond their life, using wills, trusts, and other planning documents.

Trustee: An individual or institution appointed to manage trust assets and execute the trust’s terms.

Trustor: The person who creates a trust by placing assets under the control of a trustee for the benefit of a beneficiary.

FAQs

Why might someone choose to set up a trust instead of a will?

Trusts offer more control over when and how assets are distributed to beneficiaries, can provide tax benefits, and help avoid probate, which is the legal process of administering a deceased person’s will.

Can a trust be used for purposes other than family estate planning?

Yes, trusts are also commonly used for charitable purposes, to manage assets for individuals with special needs, or to protect assets from creditors.

What is the difference between a revocable and irrevocable trust?

A revocable trust allows the trustor to retain control and make changes during their lifetime, whereas an irrevocable trust does not allow changes once established and offers stronger protection against creditors and estate taxes.