Definition
In real estate, a Trust is a fiduciary arrangement whereby property is temporarily transferred by a grantor (also referred to as a trustor) to a third-party trustee. The trustee holds and manages the property on behalf of the beneficiary, as stipulated by the terms of the trust agreement.
Examples
-
Inter Vivos Trust: Established by a living person who transfers assets (e.g., a warehouse) to a trustee for the benefit of designated beneficiaries (e.g., her children). This type of trust is also known as a living trust.
- Example: Jane transfers her warehouse to a trustee to manage the income and distribution of the property’s revenue to her children while she is still alive.
-
Testamentary Trust: Established upon the grantor’s death according to the terms specified in their will.
- Example: John’s will specifies that upon his death, his estate should be placed in a trust for the education of his grandchildren, and it becomes effective only after his death.
Frequently Asked Questions (FAQs)
What is the primary purpose of a trust? A trust is created to manage and protect assets for beneficiaries, potentially offering tax advantages and ensuring that the grantor’s wishes are carried out properly.
Who are the primary parties involved in a trust? The three main parties involved are the grantor (or trustor), the trustee, and the beneficiary. The grantor establishes the trust, the trustee manages it, and the beneficiary receives the benefits from the trust’s assets.
Can a trust be revoked or altered? It depends on the type of trust. Revocable trusts can be altered or revoked by the grantor during their lifetime, while irrevocable trusts cannot be easily altered or revoked once they are established.
What are the advantages of creating a trust over a will? Trusts can avoid probate, provide privacy, enable faster distribution of assets, potentially reduce estate taxes, and specify how and when assets are distributed.
How does a trust differ from a will? A will becomes effective upon the death of the grantor and typically requires probate, whereas a trust is effective immediately upon creation and can manage assets both during and after the grantor’s life.
Related Terms
- Grantor (Trustor): The individual who creates the trust by transferring assets to it.
- Trustee: The individual or entity responsible for managing the trust according to its terms.
- Beneficiary: The person or entity who receives the benefits from the trust’s assets.
- Revocable Trust: A trust that can be modified or terminated by the grantor during their lifetime.
- Irrevocable Trust: A trust that, once established, cannot be modified or terminated without the beneficiary’s consent.
- Living Trust (Inter Vivos Trust): A trust established during the grantor’s lifetime.
- Testamentary Trust: A trust that is created according to the instructions in a person’s will and becomes effective upon their death.
- Probate: The legal process through which a deceased person’s will is validated and executed.
Online Resources
- Investopedia - Trust: Detailed explanation of trusts and their uses.
- Nolo - Types of Trusts: Guide to various types of trusts and how they work.
- IRS - Trusts: Information on trusts for tax purposes.
References
- Lindley, R. (2022). Trusts and Estates: A Step by Step Guide. Finance Press.
- Thurston, M. (2020). Estate Planning For Dummies. Wiley Publishing.
- Stoddard, C., & Saunders, L. (2018). The Living Trust Advisor: Everything You Need to Know about Your Living Trust. Wiley Publishing.
Suggested Books for Further Studies
- The Trustee’s Legal Companion: A Step-by-Step Guide to Administering a Living Trust by Liza Hanks.
- Understanding Living Trusts: How You Can Avoid Probate, Keep Control, Save Taxes, and Enjoy Peace of Mind by Vickie Schumacher.
- Drafting Trusts and Will Trusts in Northern Ireland by James T. L. Walters.
