A trust is a contract between a grantor (creator of the trust) and a trustee that allows the trustee to hold and manage assets on behalf of a beneficiary. It is memorialized in writing by a trust agreement that spells out the rules of the fiduciary arrangement. A grantor (also called a settlor or trustor), trustee, and beneficiary are all necessary parties to a trust. One person can be the grantor, trustee, AND beneficiary, or these positions can be filled by different people.
Trusts are typically broken into two different categories: revocable and irrevocable. A revocable, or inter vivos, trust can be revoked or amended during the grantor’s lifetime by the grantor. An irrevocable trust, on the other hand, cannot be modified or revoked. Oftentimes, a revocable trust will become irrevocable upon the grantor’s death. An irrevocable trust is similar to a gift, in that, once the property is transferred into the trust, it cannot be taken back.
So what are the benefits of setting up a trust?
Other specific types of trusts include special needs trusts, irrevocable life insurance trusts, grantor retained annuity trusts, charitable remainder trusts, generation-skipping trusts, qualified terminable interest property trust (QTIP), marital and bypass trusts, and many more. Depending on the client’s goals, there is inevitably a trust that can reach those goals.