But What IS a Trust?
One of the most common questions I get is, “What is a Trust?”
I find myself down a rabbit hole of how they work, when people use them, types of trusts, the pitfalls, and the benefits.
Then the response is often - But what IS a trust?
I realize I still haven't answered the question...
Here's my attempt to answer: A trust is a legal arrangement where
a person (the grantor or trustor)
transfers assets (house, cash, stocks, anything)
to be managed by someone (the trustee)
on behalf of someone (the beneficiary)
The rules of the trust, such as how the assets are to be managed, trustee's powers, when the trust ends, and many other details are covered by the trust document.
Let's say Pat gives Sam $500 to hold for your benefit - A trust has been created.
In this scenario:
✨ Pat is the trustor because she established the trust.
✨ Sam is the trustee because she is holding onto the $500.
✨ The trust asset is the $500.
✨ The beneficiary is you.
Ideally, Pat would also write up a trust document that governs how Sam should manage that money. Surprisingly, a trust document isn't necessary for a trust to be created, but of course, it is preferred to have a written trust document in place.
The trust document ensures Pat's wishes are clear, Sam knows what her authority is, and you know what to expect from the trust.
The NECESSARY* elements of a trust are:
Trustor/Grantor: The person who creates the trust, and (usually) the person who puts assets into the trust.
Trustee: The person or entity responsible for managing the trust assets.
Beneficiary: The person or entity that benefits from the trust assets and/or income.
Trust Assets: The property or assets placed into the trust.
While roles 1-3 can be three different people, it can also be the same person for all 3 roles.
Item 4 - trust assets, if often overlooked. A trust that does not actually own anything is defunct because there is nothing for the trustee to manage and, therefore nothing for the beneficiary to benefit from. You can have a perfect trust document, with all the rules and protections, but only the assets that are actually transferred into the trust are covered by its rules.
*To be clear, I would never recommend creating a trust without a governing document. It is just not a necessary element.
If you want to learn more, I recommend exploring more about trusts HERE. Or attending one of my seminars. Look for upcoming seminar dates HERE.
Better yet, Schedule Your Consultation, and take the first step toward creating a complete estate plan that protects what matters most to you and your loved ones.
