Trust 101

Monday, Sep 20, 2021

What is a trust?  Per the Webster’s Dictionary, a trust is “a property interest held by one person for the benefit of another”.  Commonly referred to as a “trust fund”, Webster’s Dictionary indicates the first year of known use for this term was 1738.  Trusts have been around for a very long time!

A few of the terms to understand when talking about a trust are:

  • GRANTOR – the person or persons who establish and fund the trust by transferring assets; also known as settlor or trustor
  • BENEFICIARY – the person or persons who will receive assets from the trust
  • TRUSTEE – the individual or organization who will manage the trust assets per the direction of the grantor
  • SUCCESSOR TRUSTEE – the individual or organization who assumes management of the trust assets after the initial trustee dies or is unable to continue acting as trustee
  • TRUST DOCUMENT – the written instructions that spell out the management of the trust
  • FIDUCIARY OBLIGATION – the legal duty for the trustee to act in the best interest of the beneficiary or beneficiaries
  • REVOCABLE TRUST – a trust that can be changed, altered or terminated by the grantor during his or her lifetime; also referred to as a living trust
  • IRREVOCABLE TRUST – a trust that cannot be changed, altered or terminated by the grantor

A trust is a very effective tool used when creating an estate plan.  Advantages of setting up a trust include the transfer of wealth and assets efficiently and privately at the time of death, reducing estate tax and allowing control over the distribution of assets after the grantor’s death.  Many people believe that the costs associated with establishing a trust are expensive but the benefits and peace-of-mind often outweigh these costs.  At some point in life, everyone needs an estate plan and trusts are often an integral part of these plans.

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