In law a trust is a relationship where property is held by one party for the benefit of another party. A trust is created by the owner, also called a "settlor", "trustor" or "grantor" who transfers property to a trustee. The trustee holds that property for the trust's beneficiaries. Trusts exist mainly in common law jurisdictions. They have existed since Roman times.
Basics of trustsEdit
When an owner of property places that property into trust, he or she turns over part or all of his or her rights to the trustee. This separates the property's legal ownership and control from its settlor's ownership and benefits. This controls the property and its benefits if the settlor is absent, incapacitated, or dead. Trusts are frequently created in wills, defining how money and property will be handled for children or other beneficiaries.
The trustee is given legal title to the trust property, but has an obligation to act for the good of the beneficiaries. The benefits of the trust belong to the beneficiary. The trustee may be compensated and have expenses reimbursed. But the trustee must otherwise turn over all profits from the trust properties. Trustees who don't do this are self-dealing. Courts can reverse self dealing actions, order profits returned, and impose other sanctions.
The trustee may be either a individual, a company, or a public body. There may be a single trustee or multiple co-trustees. The trust is governed by the terms under which it was created. In most jurisdictions, this requires a contractual trust agreement or deed.
Advantages of a trust may include:
- Avoiding probate or court intervention with regard to a person's assets;
- Planning for future events that may affect property;
- Control of what happens to assets after death;
- Possible reduction of future tax liability;
- Keeping financial affairs confidential when they might otherwise have to be disclosed in probate court; and
- Planning for your own disability or incapacity, or providing support for a disabled family member.
Testamentary trusts transfer property into the trust after the death of the settlor. The trust allows the settlor to specify any conditions and may spread payments from the trust over a period of time. Testamentary trusts are not automatically created when the settlor dies but may be specified in will. Because a testamentary trust is created by a provision of a will, it is necessary for the estate to go through probate.
A living truthan a testamentary trust. Many people use a living trust to avoid probate, although even with a trust a deceased person's estate will often still include assets that must be probated. You also cannot use living trusts to name guardians for your children, but may designate a guardian in your will.
Living trusts may be used to manage property both during the settlor's lifetime and after death. If the settlor becomes incapacitated, disabled by an accident or illness, or is unavailable to manage the property the trustee may manage the property on behalf of the settlor in a manner consistent with the terms of the trust.
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- David Johnston. "The Roman Law of Trusts - Abstract". Oxford Scholarship Online. Retrieved 22 November 2015.
- "Trust". The Free Dictionary/Farlex. Retrieved 22 November 2015.
- Larson, Aaron (4 May 2017). "What is a Trust and Why You May Need One". ExpertLaw. Retrieved 12 July 2017.
- Campbell, Brett. "Living Trusts" (PDF). American Bar Association. Retrieved 12 July 2017.
- Rolcik, Karen A. (24 October 2004). The Living Trust Kit. Sphinx Publishing. ISBN 1572484497.