What Is a Trust?

What Is a Trust?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A trust is a legal arrangement where a person, known as the trustor, transfers assets to a trustee. The trustee is responsible for managing these assets for the beneficiaries specified by the trustor. By creating a trust, the trustor ensures that his or her assets are protected and effectively distributed according to their wishes. There are several types of trusts, each with different rules and purposes, such as living trusts, testamentary trusts, revocable trusts, and irrevocable trusts.

Related Questions

1. Who benefits from a trust?

The beneficiaries benefit from a trust. They are individuals or organizations designated by the trustor to receive the assets or income from the trust. Depending on the type of trust, beneficiaries might receive distributions during the trustor’s life, after their death, or a combination of the two.

2. What is a living trust?

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A living trust, also known as an inter vivos trust, is created by the trustor while they’re alive. This type of trust can be changed or dissolved by the trustor during their lifetime, and it allows the trustor’s property to bypass probate upon death, offering a smooth transition of assets to the beneficiaries.

3. How does a testamentary trust differ from a living trust?

A testamentary trust is a type of trust that’s created within a will and only comes into effect after the trustor’s death. Unlike a living trust, a testamentary trust doesn’t avoid probate, which can be a lengthy and potentially costly process.

4. What is a revocable trust?

A revocable trust is a type of trust that can be changed or revoked by the trustor during their lifetime. This provides a high level of control to the trustor, allowing them to adjust the beneficiaries, terms, or even dissolve the trust altogether while they are still alive.

5. What distinguishes an irrevocable trust from a revocable trust?

An irrevocable trust, once established, cannot be altered or revoked without the consent of all involved parties—typically, the beneficiaries. This type of trust is often implemented to minimize estate taxes and protect assets from creditors because the assets in the trust are no longer legally owned by the trustor.