What is a Trust?

A trust is a legal arrangement in which one person or entity (the trustee) holds certain assets for the benefit of another person or entity (the beneficiary), in accordance with a written trust document. One person may be both the trustee and the beneficiary of the same trust. Trusts are often used by the settlor, or grantor (the person who creates the trust), to avoid probate and specify how his or her assets are to be distributed upon death.

Trusts are not only for the wealthy. Trusts are often used by young families to plan for the care of their minor children in case both parents die before the children reach adulthood. The use of a trust allows the estate to be held as an undivided sum that will be used for the education and support of the children until they reach a certain age, at which point the assets will be distributed according to the trust provisions.

Two common types of trust used in the estate planning process are the living trust and the testamentary trust.

A living trust, also called an inter vivos trust, is simply a trust that is created by the settlor during his or her lifetime. Living trusts can be either “revocable,” meaning that they can be changed or terminated at any time, or “irrevocable,” meaning they are permanent and cannot be changed.

A living trust remains legally in existence during the settlor’s lifetime. Upon the settlor’s death, the trust is administered by a successor trustee, and usually remains in existence only long enough for the assets to be distributed to the remaining beneficiaries.

A testamentary trust is created by the operation of a will. This type of trust does not exist while the settlor is alive, and the trust provisions are contained in the will itself.

Next section: Wills