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TRUSTS
What is a Trust?
A trust is a form of property ownership that generally involves at least three people:
- the "Settlor" - this is the person who creates the Trust and transfers property to it;
- the "Trustee" - this the person (sometimes a bank or trust company) who receives the property from the Settlor and manages it in accordance with the Settlor's instructions - these instructions are usually in writing and set forth in a document known as a "Trust Instrument" or simply the "Trust;"
- the "Beneficiary" - this is the person (or persons) for whose benefit the Settlor created the Trust.
For example, a parent may put money into a trust to pay for a child's education. Here, the parent is the "Settlor," if the money is held by the child's aunt, the aunt is the "Trustee," and the child is the "Beneficiary."
Trust Terminology
In addition to "Settlor," "Trustee" and "Beneficiary," there are other terms that are often used in connection with trusts. Some of the more common are:
- "Inter-vivos" trust - a trust that is created during the Settlor's lifetime - such as the education trust described above;
- "Living" trust - same as an inter-"vivos" trust;
- "Testamentary" trust - a trust that is created upon the death of an individual - usually the Settlor;
- "Revocable" trust - a trust that can be changed or revoked by the Settlor at anytime during his/her lifetime;
- "Irrevocable" trust - a trust that cannot be revoked or changed;
- "Marital" (Deduction) Trust - a trust for the benefit of a surviving spouse that's designed to take advantage of certain beneficial tax rules that apply to gifts made to spouses;
- "Bypass" or "Unified Credit" trust - a trust also designed to take advantage of certain beneficial tax rules that apply to gifts;
- "Charitable" trust - a trust that has one or more charities as its beneficiaries;
- "Qualified Personal Residence Trust" (QPRT) - a trust intended to own the personal residence of the Settlor. These trusts are very specialized and governed by specific income and gift tax rules.
- "Insurance" Trust - a trust designed to hold (own) life insurance policies insuring the life of the Settlor;
- "Income" beneficiary - a beneficiary who receives income from the property that is placed in the trust;
- "Remainder" beneficiary - a beneficiary who receives the trust property when the trust ends.
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