What is a “trust”? What does it do?
There are three parties involved in a trust. First is the person who makes the trust, called the settlor or grantor. Second is the person who is to benefit from the trust, called the beneficiary (or beneficiaries). Third is the person who manages the trust, called the trustee. A trust is a contract, with terms determined by the grantor to govern how the trustee manages the trust, terms to decide how the assets in the trust are to be distributed to beneficiaries, terms to govern who is included in the class of “beneficiaries” if the beneficiaries are not clearly defined, terms to decide when the trust should terminate, among others. Because a trust is a private contract, the settlor or grantor can decide upon whatever terms and conditions he or she wants in the trust, unless they are illegal or against public policy.
Essentially, a trust is a way for someone to control his or her assets “from the grave.” For comparison, with a last will and testament, assets are distributed once the deceased’s debts are paid by his estate. The administration timeframe with a will is usually no longer than thirteen months. With a trust, the trust holds assets (typically by re-titling or re-deeding an asset) and the trustee makes distributions according to the terms of the trust, which could be at staggered ages (25, 30, 35), or to pay for college, etc., and could last for years.
There are several different types of trusts used for several different purposes. Most of my clients use trusts to provide for children or grandchildren (pay for college, provide distributions at key ages in life), or they have a child or grandchild with a disability and they want to leave assets to their disabled loved one to maintain their quality of life, without jeopardizing government benefits. Other common trusts include credit shelter trusts, life insurance trusts, domestic asset protection trusts, firearms (“gun”) trusts, pet trusts, IRA trusts, among many others.
Trusts have certain benefits that clients find attractive. Unlike wills, which are public documents and can reveal private information including finances, a trust is not a public document. Privacy can be a big concern for those wishing to keep certain things private, such as business owners and their finances. Trusts, if properly funded, avoid the probate process. In some situations, trusts can protect assets from creditors. Particularly important for many of my clients (as mentioned above), trusts permit someone to control the distribution of their assets from the grave, often for years.
This blog post is a very general and condensed explanation of the benefits of a trust. If you are interested in learning more about how a trust might benefit you, email me at firstname.lastname@example.org or contact me via http://www.juliemillslaw.com.