A Trust is a relationship in which one party (grantor) gives a second party (trustee) the right to hold title to property or assets for the benefit of a third party (beneficiary). So what does this mean?
Are you concerned about the future of your estate? Perhaps you have various kinds of property, accounts, investments, and other assets. Maybe you want a certain heir to receive these possessions, but that heir is not yet able to manage these responsibilities. You need to ensure that someone you trust can take care of your estate, whether that’s during your lifetime if you become incapacitated, or after your death until your heirs can possess your property.
It’s time to create a Trust! Trusts and Wills clearly spell out the rights of beneficiaries and responsibilities of legal guardians or executors of estates. But a Trust varies from a Will in a few key ways. It’s important to understand what a Trust is and how it works.
How does a Trust work?
When you create your Trust as the settlor, you give a trustee the responsibility to hold and manage property or assets on behalf of a beneficiary. The trustee then has the legal obligation to manage the Trust property in accordance with the terms of the Trust agreement and the wishes of the settlor.
What does a Trust do?
As the settlor, you can write your Trust to specify exactly which assets your beneficiaries will receive, as well as when and how. A Trust may pass ownership to your beneficiaries more quickly than a Will might because a Trust usually avoids the probate process.
Putting your estate into the hands of your trustee protects your possessions and your beneficiaries. For example, if your beneficiaries are currently incapable of handling your property, your trustee will manage it until they are ready. Your Trust also keeps your assets more private by keeping them out of the probate process. You can control your wealth, who inherits it, and how it will be passed out to the beneficiaries.
What is the beneficiary of a Trust?
Beneficiaries are the people who are intended to benefit from the contents of your Trust. Beneficiaries are not completely at the behest of the trustee; depending on the type of Trust, a beneficiary may be entitled to ensure that the Trust is properly managed, among other responsibilities that may not be obvious at first glance.
A beneficiary has five basic rights, which we outline more extensively in our 5 Trust Beneficiary Rights article:
- The right to receive an official copy of the Trust
- The right to distributions within the Trust
- The right to information about the Trust and how it works
- The right to an accounting of the Trust (a detailed financial report)
- The right to petition the court to remove the Trustee
What is the difference between a Will and a Trust?
A Will and a Trust are separate legal documents that often are set up to attempt to accomplish the same goal and often may work together during an estate plan. A Will is simple, straightforward, and instructs on how to distribute assets to beneficiaries after your death. A Trust is more complex, in which you can elect a trustee to help transfer your property to beneficiaries at any time. A Living Trust generally supersedes a Will, but a Will may sometimes override specific types of Trusts.
What is a Testamentary Trust?
A testamentary Trust is part of your Will. Let’s say you want to leave specific instructions for how your trustee will manage your assets after your death. You’ll put these details into your testamentary Trust, which will come into effect only after your death.
A testamentary Trust is most useful if your intended heirs are still minor children, or if you wish for your items to be donated to charities after your passing. You can even create separate Trusts for each beneficiary if you have multiple heirs in mind.
What is a Trust Deed?
A Trust deed will come in handy if you have taken out large loans to purchase plots of property. Your Trust deed will represent the transaction and agreement between you and your lender about your trustee managing the property while your loan is paid off. In a Trust deed, the beneficiary is actually your lender because the Trust protects them and their investment.
Let LegalShield help set up your Trust
Now that you know a few of the key ways in which a Trust can benefit you and your loved ones, we can help you set up your Trust. Imagine the peace of mind you could give yourself and your loved ones by having a Will or Trust in place.
Read more in depth about the differences between Trusts and Wills before deciding which one is better for you.
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