Definition of a Trust
In general, a "trust" is a
legal entity that is able to own property and other assets.
It is one of the oldest and best defined relationships known
in the law. The Babylonians used trusts, and every society
since then has used some sort of trust relationship. Essentially,
it is established by a legal agreement defining how assets
are going to be managed and distributed. Property can legally
be transferred into the trust and have the trust own it.
Different trusts have different types of classifications
in the law and for tax purposes.
Roles in a Trust
One person (the "grantor") gives up property
or "grants" property to another person (the "trustee"), who
is "trusted" by the grantor. The trustee is trusted to take
care of the property and use the property, not for himself,
but for the "benefit" of a third person (the beneficiary).
The terms "trustee" and "beneficiary"
are standard in every trust. However, the term "grantor"
is often times replaced by "settlor", "creator",
or "trustor". Often times, one person takes on
more than one role in the trust (and in a Revocable Living
Trust, you will probably be the grantor, the trustee, and
the beneficiary all at the same time).
The trust document tells the trustee
what he or she is supposed to do with the property, and the
trustee is bound by law to follow the exact instructions
given by the trust. The trustee is bound by a "fiduciary
duty" to handle the property exactly as the trust directs
(sometimes the trustee is referred to as a "fiduciary".
The Revocable Living Trust (or Family Trust)
A Revocable Living Trust (also known
as a Family Trust or Living Trust) is used primarily to avoid
probate, reduce estate taxes, preserve
your privacy, and manage your financial
A Revocable Living Trust is
a trust established while you are living.
It is revocable, so you are able to make
changes whenever you want, as well as reclaim the property
transferred into it. It describe how your property should
be managed while you are alive, and how it should be distributed
upon your death. It is often called a family trust.
Avoiding Probate and Protecting Privacy with a Trust
Normally, if a person without
a trust dies, there must be a probate process
to determine how to distribute all of the property held solely
in the decedent's name. A Will
can help the probate court to determine where the property
should go, but does not avoid the probate process. In fact,
one primary purpose of probate is to validate the "last
will" if one exists. Probate is a public procedure and
opens up an estate's distribution to the public eye.
When you have correctly set up
and used a Revocable Living Trust, upon
your death there will be no probate process. This is because
the owner of the property (the Trust) did not die; just the
person in the role of the grantor and trustee (you). The
new successor trustee will be able to take over without the
long probate process.
Should You Create Your Own Living Trust?
Establishing your own living
trust is not really that hard to do. You need to understand
all the issues involved so you can make the best decisions
that fit your own situation. A major fault with many living
trusts lie in the fact that they are not really understood,
and therefore not used correctly.
education, bulletproof plain-English estate planning documents,
and legal support you can have a much better estate plan
than most anyone blindly getting their documents "set
up for them" at an attorney. Our Estate Planning System provides the essential
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By a Different Name
In the Western United States,
where the trusts are more popular, the terminology "Revocable
Living Trust" is being referred to as an "LRT".
Lawyers used to call the trust an "inter vivos revocable
trust" (inter vivos is Latin for "between the living").
The Revocable Living Trust is also commonly called an "A-B
Trust", a "C Trust", a "Family
Trust", a "Shelter Trust", a "Common
Trust", a "QTIP (Qualified Terminable Interest
Property) Trust," and a dozen other names. Some
books call it a "Loving Trust" because it
is established for the people you love.
More Information on Revocable Living Trusts
DVD on Revocable Living Trusts
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- How to Name Your Trust
- How to Pick Your Trustee
- How to Use an Attorney (and
not get "used")
- How to Make a Trust Legal
- How to Fund Your Trust
- How to Avoid Attorney Shams
- How to Make your Trust Really
- Which Property to Put Into
Your Trust (and how)
- How to Deal with Life Insurance,
Your Will & Trust Work Together
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