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  • Writer's pictureFresh Start

What is Trust?

A trust is a legal agreement between three parties: the trustor, the trustee, and the beneficiary. The trustor is the person who creates the trust, the trustee is the person who manages the trust, and the beneficiary is the person or group of people who will receive the assets held in the trust.





  • The trustor transfers assets into the trust, which the trustee then manages for the benefit of the beneficiary. The trustor sets the terms of the trust, including how the assets are to be distributed and when.


  • Trusts can be either revocable or irrevocable. A revocable trust can be changed or terminated by the trustor at any time, while an irrevocable trust cannot be changed or terminated without the permission of the beneficiaries.


How Does a Trust Work?


When a trust is created, the trustor transfers assets into the trust, which becomes a separate legal entity. The trustee then manages the assets held in the trust according to the terms of the trust. This may include investing the assets, paying expenses, and distributing income or principal to the beneficiaries.


The trustor may serve as the trustee of the trust, or they may appoint someone else to act as trustee. If the trustor is also the trustee, they will need to name a successor trustee who will take over if they become unable to serve.


Some common types of trusts include:


Revocable living trusts: These trusts are often used in estate planning to avoid probate and provide for the management and distribution of assets after the trustor’s death. The trustor can change or revoke the trust during their lifetime.


Irrevocable trusts: These trusts cannot be changed or revoked without the permission of the beneficiaries. They may be used to provide for the long-term care of a beneficiary, protect assets from creditors, or minimize estate taxes.


Charitable trusts: These trusts are designed to provide support to a charitable organization or cause while also providing tax benefits to the trustor.


Special needs trusts: These trusts are designed to provide for the long-term care of a beneficiary with special needs, without affecting their eligibility for government benefits.


  • Benefits and Drawbacks of Trusts

  • Trusts offer many benefits, including:

  • Avoiding probate:


Assets held in a trust can avoid the probate process, which can be time-consuming and expensive.


  • Protecting assets: Trusts can protect assets from creditors, lawsuits, and divorce.


  • Providing for the long-term care of a beneficiary: Special needs trusts and other types of trusts can provide for the long-term care of a beneficiary without affecting their eligibility for government benefits.


  • Minimizing estate taxes: Irrevocable trusts can be used to minimize estate taxes by removing assets from the estate.



However, trusts also have some drawbacks, including:


  • Cost: Creating and administering a trust can be expensive, especially if a professional trustee is used.


  • Loss of control: Once assets are transferred into a trust, the trustor loses some control over them.


  • Complexity: Trusts can be complex legal instruments, and it can be difficult to understand the terms of a trust.



Conclusion:

Trusts are a powerful estate planning tool that can provide many benefits to the trustor, trustee, and beneficiary. However, they can also be complex and expensive, and it is important to carefully consider the pros and cons.


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