What is a Trust?

Published by Thomas Herold in Investments, Laws & Regulations, Real Estate

'Trust' is explained in detail and with examples in the Real Estate edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

A Trust proves to be a special type of fiduciary arrangement where one participant the trustor grants the other participant the trustee the rights to possess the property title or assets title for the advantages of the beneficiary, often times a third party. When it is utilized in the world of finance, this similarly refers to a kind of closed end investment fund collectively established as a public limited company.

Settlors ultimately establish such trusts. They elect to shift over all or a portion of their possessions (assets) to the trustees of the trust in this action. It is the trustees who ultimately maintain the assets on behalf of the beneficiaries of said trust. The trusts’ rules come down to the particular terms that apply to the given trust in question. Some jurisdictions allow for older members of the beneficiaries’ class to ascend to the roles of trustee. Some of these jurisdictions actually allow for the grantor to be both a trustee and lifetime beneficiary together at once.

Two different types of trusts exist, the testamentary trust and the living trust. The testamentary trusts are also known as will trusts. These determine the means in which the assets for the individuals will be allocated after they eventually pass away. The document of such a trust comes into play legally following the death of the testator.

On the other hand, living trusts are known as inter vivos or revocable trusts. These written out documents allow for the assets of an individual to be created in the form of a trust. The individual himself or a beneficiary will then enjoy the advantages of and utilization of the resources throughout their remaining lives. Such assets will eventually be transferred to the legal beneficiaries when the individual dies. The trust creator sets a successor trustee who will carry the responsibility of transferring any remaining assets over to the beneficiary in question.

There are a number of different reasons that individuals employ trusts. One of these is to attain a degree of privacy. Wills and their arrangements are often public domain material in many jurisdictions. Trusts can specify the identical conditions which a will may, without the intrusive nature of being public domain documents available for any and all members of the public to read upon demand. This explains why those people who do not wish to have their wills and terms of their estate disposition revealed publically after they are gone will often choose to utilize trusts for their final bequests instead of the will document.

Besides this, trusts are a useful vehicle for planning the payment of taxes. Trusts have different tax arrangements than do standard planning accounts and competing vehicles. The tax consequences for deploying such trusts are typically less negative and expensive than those of other typical means involved in financial planning. This helps to explain why using trusts has become a standard option in the world of efficient tax planning. This is the case not only for individuals but also for corporations.

Finally, trusts find extensive utilization in estate planning procedures. This allows for the assets of deceased people to be passed on to their spouses. The spouses are then able to equally divide up the remaining assets for the benefit of the children who survive the deceased parent. Those children who do not possess the necessary 18 years of age to be considered legal persons (with possession rights) will be required to have trustees to exercise control over all assets in question until they reach the legal age of adulthood.

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The term 'Trust' is included in the Real Estate edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.