A Trust is a contract or agreement that creates an ownership structure.
Trusts are “instruments” that are evidenced through writing. They primarily provide instructions on who or what has access to your property—usually money—and who has the authority to distribute that property.
To better explain, imagine this simple example: you have one or two grandchildren, and you want to make sure they have their college educations paid for. You can transfer a sum of money into a trust as the settlor—sometimes called creator or even grantor. The trust directs a trustee to care for that money until the grandchildren—the beneficiaries—start going to college. At that point, the trustee would start distributing the money. It is important to note that the trustee is considered a fiduciary to the beneficiary. As a fiduciary, the trustee is supposed to act in the beneficiary’s best interests, and if the trustee does not do that, then the beneficiary may have the ability to sue the trustee in a court of law.
Types of Trusts
There are several types of trusts. You and your attorney should carefully discuss what kind of trust you can and should set up. Generally, however, trusts can first be divided into two categories: (1) testamentary and (2) living. A testamentary trust is like a will in one way—death. A testamentary trust is effective only after the settlor dies. These types of trusts are regularly mentioned in wills as well. A living trust—sometimes called inter-vivos—is a trust that does not depend on death.
Trusts are classified in one of three ways and there are significant differences.
Why a Trust?
The benefits or the reasons for wanting a trust can vary. First, some decide to put their assets in a trust to avoid the costs of probate. Also, trusts also generally allow you to be more specific and even creative in how you want your money or assets used by the beneficiary. For instance, increasingly common these days are also what are called “pet trusts” that allow you to set aside money to have somebody take care of your pet after you die.
Some opt to create trusts to help them manage their property and finances while they are still alive, but may not necessarily be competent enough to do it themselves. For example, if somebody knows that there is a chance of becoming mentally incapacitated in the future, they can start making plans now.
If you are thinking about creating a trust, EDS is ready to help you down the right path.