You’ve heard it a thousand times. You’ve even nodded your head as your friend or colleague mentioned their ‘trust’. But do you really know what they were talking about? Don’t be embarrassed if you’re not sure exactly what a trust is - most people don’t! Our clients often come to us with a vague definition of a trust formed by bits and pieces they have heard from family, friends, television, or other sources.
While a trust and its components can be long and confusing, the ‘what is a trust’ question is quite simple.
A “Trust” is merely a contract between the grantors (the people who put assets in the trust) and the trustees (the people who manage it according to the terms of the contract) for the benefit of the beneficiaries (the people who benefit from it).
To clarify further, let’s use your friend, Tim and Lisa as an example. They talk about the Tim & Lisa trust they set up for their family – more specifically, for their children, Brandon and Sandy. This type of trust is commonly known as the Revocable Living Trust. Tim and Lisa are the grantors as they set it up for their family and transferred their assets to it. During their lifetimes, Tim and Lisa are also the trustees. In this trust, they will nominate successor trustees to take over after they pass away. They established the trust to hold and use money for Brandon and Sandy, the beneficiaries. During their lifetimes, Tim and Lisa are also the beneficiaries along with any dependent children. After they die, the children become the remainder beneficiaries (and anyone else they may have elected).
To recap: Tim and Lisa, as grantors, contracted with themselves, as trustees, to hold and manage property according to the terms of their trust (the contract) for themselves and for their dependent children, as beneficiaries. Money and other assets from this trust will be distributed to the beneficiaries according to the rules in the contract, established by Tim and Lisa.
This is just one basic example of a revocable living trust. There are many different types of trusts, and endless ways to structure the rules in a trust to ensure it accomplishes your desired goals.
If you’re wondering if a trust is right for you or if you have questions on a current trust, get in touch! We’d love to talk with you.