A trust is an agreement between three main parties:
- Grantor (sometimes referred to as a Trustmaker, Trustor or Settlor) – is the person who creates the Trust and whose assets are used to fund the Trust. Depending on the nature of the Trust, the Grantor is the only person who is able to amend a Trust or terminate a Trust in its entirety.
- Trustee – is the person(s) or entity who controls the assets owned by the Trust and who makes all of the decisions (usually in accordance with the Trust Agreement) about the Trust assets such as investing, selling, and/or changing the nature of assets held by the Trust.
- Beneficiary or Beneficiaries – is/are the person(s) who benefit from the assets held in the Trust.
The rules of a Trust are set out or built upon terms most typically set out in a Trust Agreement. There are many different types of Trusts that can be created and usually a Grantor will work with professionals such as lawyers and/or accountants to assist with an appropriate Trust Agreement. A few examples of Trusts are as follows:
- Living Trust – a form of trust established during the Grantor’s lifetime. This form of trust is also commonly referred to as an “inter vivos” trust. In this instance the Trustee is given responsibility to prudently manage some or all of the Grantor’s assets during his/her lifetime. There are many forms of Living Trusts such as Family Trusts, Spousal Trusts, Joint Partner Trusts, Alter Ego Trusts, etc.
- Testamentary Trust – The Trustee is given responsibility to prudently manage some or all of the assets of the Grantor after death. A Testamentary Trust is typically set out or established by the Grantor’s Last Will and Testament and/or by order of the Court.
It is important to note that a Living Trust is often used for estate planning purposes and is often established to eliminate the need for probate after death. How so you ask? In a nutshell, a Trust, rather an individual in his/her own name, owns the assets. A Trust owns property when the Grantor transfers the property as an individual to the Trust as an entity. An entity is nonliving, therefore, Trust Property is never subjected to the probate process. Transferring individual assets into a Trust is a process that typically requires professional advice and direction. Merely listing assets to be held in the Trust in a Trust Agreement does not legally change the ownership of the asset. Once the asset is owned by the Trust, it becomes subject to the control of the Trustee and the rules governing the distribution of the Trust to the beneficiaries ultimately.
Trusts are complex and not for everyone. Let us know how we can help you to better understand a Trust and how it may or may not benefit you.