What is a Trust?

A trust is an agreement created between an individual or entity, setting forth terms and conditions in which property or assets are managed and distributed. A trust is an fiduciary relationship created when one party holds legal title to property and other party, the beneficiary, holds equitable title.

The Three Types of Trusts

There are three basic types of trusts: revocable, irrevocable and testamentary. Some societies provide for a fourth type, resulting trusts.

1. Revocable: This trust is created and often amended or revoked by the same person. A revocable trust allows the grantor or maker full control of the property placed in it. None of the assets in a revocable trust shall pass to the beneficiaries until the grantor’s death.

2. Irrevocable: An irrevocable trust cannot be changed or revoked by the grantor, nor can the beneficiary terminate it. After all of the assets have been placed in the trust, the grantor cannot revoke or amend it. The beneficiary is not allowed to transfer the trust assets or terminate it, but can be removed or replaced.

3. Testamentary trust: Testamentary trusts are created through a will and become active upon the death of the testator. Testamentary trusts are created with the intent of managing a deceased person’s assets and debts until they are properly distributed.

Benefits of Trusts

One of the most significant benefits of having a trust is that trust assets are not subject to probate, meaning they generally do not go through a court-supervised process to be distributed to the beneficiaries.

Having a trust is also beneficial because it can protect an individual’s assets against creditors and tax authorities. A trust can also be used to manage an individual’s assets if they become incapacitated or mentally incompetent. Finally, the trust can provide legal protection for the individuals who are creating and managing the trust.