According to Black’s Law Dictionary, a Trust is “A legal entity created by a grantor for the benefit of designated beneficiaries under the laws of the state and the valid trust instrument.” What that means is: think of a trust as a basket that you own. You are the ‘grantor’. The basket holds assets. The basket is the ‘legal entity.’ You use the assets for your own benefit. You are the ‘beneficiary’, and when you die, your assets go to your children; they become the beneficiaries.
So, a Trust has 3 players:
- the Grantor—the person who owns the assets put into the trust
- the Trustee—the person who manages the assets for the benefit of the beneficiaries
- the Beneficiaries—the person(s) who benefit from the assets—either by receiving the income of the trust, or by receiving the assets from the trust.
If I create a trust today, I may put my house, my bank accounts and my investments into my trust. The trust actually owns my assets now, not me directly. I can still do anything I want with my assets—reinvest, sell, or even give them away, but when I do that, I am acting as the ‘trustee’—the person who manages the trust. I am also the beneficiary of my trust—I benefit from the assets of the trust.
Say that tomorrow I suffer a massive stroke, and am unable to manage my finances. I still have my trust, but I cannot be the trustee. That job will fall to my ‘successor trustee.’ That trustee has a job to manage the assets and look after my needs, because while I am no longer the trustee, I am still the beneficiary.
If I succumb to the effects of my stroke and die, I am no longer the beneficiary of my trust—the new beneficiaries will be the people I have named when I created my trust—much like a Will says who will receive probate assets. At this point, the trust will probably terminate.
Trusts may be useful for some people because they allow (if properly created and managed) the owner to avoid probate on death. This is especially useful if real property is owned in more than one state. Trusts also maintain privacy for the family of the deceased person. Before you set up a trust, be sure to talk to an attorney who is working for your best interests. Trusts do great things, but they are not always the best answer.