What is a Trust and What Does it Do?

At its core, a Trust is simply an agreement to hold property for the benefit of an identifiable person or entity- the beneficiary. The agreement is typically between the owner of property, the Settlor or Trustor, and the person that the owner designates to manage the property, called the Trustee. There are many types of trusts- testamentary trusts, irrevocable trusts, charitable trusts-but the most common trust is the revocable living trust. A revocable living trust is an agreement entered into between a Settlor and Trustee to hold assets for the benefit of identifiable beneficiaries. Like a corporation, a trust is an artificial entity that is allowed to own property. The Settlor transfers the title of all of his or her property to the trust, putting it into the fiduciary care of the Trustee. During the Settlor’s life, the Settlor is also usually the Trustee and beneficiary, which is completely legal, provided that the Settlor has also designated residual beneficiaries of the trust following his or her death. The trust is also revocable, which means that the Settlor has the power to amend or completely dissolve the trust at any time. This has several benefits, the greatest of which is the fact that trust property, even though completely controlled by the Settlor and Trustee, is technically owned by the trust and not the Settlor at the Settlor’s death, thus leaving the Settlor with nothing in his or her estate and avoiding the time, expense and frustration inherent in the probate process. When the Settlor dies, the terms of the trust clearly state who should serve as Trustee, who should receive the assets of the trust, and the powers and duties of the Trustee in administering and distributing the trust assets. It serves all of the same functions as a Will in probate court; however, the administration of a trust is a completely private matter with no court supervision required provided that it is correctly funded and not contested. However, trusts are more sophisticated instruments that are much riskier to create than Wills and therefore should always be drafted and funded with attorney assistance.