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 revokable 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 Revokable Living Trust (or Family Trust)
A Revokable 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 affairs.
A Revokable Living Trust is a trust established
while you are living. It is revokable,
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
Revokable 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 (you)
and most likely the trustee (usually you while you are alive).
By a Different Name
In the Western United States, where the trusts
are more popular, the terminology "Revokable Living Trust" is being
referred to as an "LRT". Lawyers used to call the trust
an "inter vivos revokable trust" (inter vivos is Latin
for "between the living"). The Revokable 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 Revokable Living Trusts
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