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Introduction To Trusts (Living Or Otherwise)


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by Igor Krishtul

In the last several years or so, living trusts have received a fairly considerable amount of publicity. That’s really cool. The public awareness of the living trusts is at the all-time high.

This awareness, however, doesn’t mean that many of you understand what the living trusts are all about. This holds true even for people who have already set-up a living trust or two.

These trusts are just one type of trusts. That’s right, there are different types of trusts. You may even be involved with one already. If you have a 401(k) at work, your money must be kept in a trust. Same goes when you contribute money to an IRA.

Trusts have not been created in a modern day America. Arrangements resembling the present-day trusts can be traced back to ancient times. They were also utilized in Medieval Europe, including England.

When the Europeans settled in the New World, they did not accept the local customs and laws. Just as the conquerors frequently do, they adopted their own. A living trust was one of the laws so adopted.

So, what is a living trusts? A trust is an arrangement. Here, one person (called grantor) transfers the title to his property to another (called trustee). The trustee, in turn, manages this property for the benefit of others. Those receiving the benefits are called beneficiaries. In short, they benefit from the property placed in trust. For these purposes, the term “person” is not limited to a living being.

As you can see, there are three major parties to a trust:

1. Grantor
2. Trustee
3. Beneficiary

Grantors are the persons providing money and other property to the trusts. They are also known as settlors or donors. In short, these people create the trust.

A trustee is a person entrusted to take care of the property transferred to trusts. Any competent adult can act as a trustee. A corporate trustee, e.g a trust company, can also act as such. When more than one party is involved, they are known as co-trustees. There may also be a successor trustee. This person takes over when the named trustee is not available or refuses to serve.

Beneficiaries are the parties who enjoy the income and/or principle of the trust property. Contingent beneficiaries are entitled to benefits only if certain events take place.

One person can be the grantor, trustee and beneficiary at the same time. Grantors should also name contingent beneficiaries.

Trusts can be created in different ways. They can be created by a court action, bequest (i.e. a will) or agreement. Courts of equity have powers to impose trusts. For example, a judge can issue an order to create a trust to remedy an act of fraud or misappropriation of property.

Trusts created by last will and testament (a will) are known as testamentary. They are not operational until after the testator's death. Probate of the will is a required step for such trusts to become effective.

A person may also execute a trust agreement or a deed of trust. This way, the trust becomes operational during his or her lifetime. Such trusts are made between the living persons. Not surprisingly, they are called living trusts.

Both the living and testamentary trusts are a very powerful financial and estate planning tool. Trusts can help you achieve goals not possible otherwise. Trusts are a very efficient way to own property. A properly designed trust can provide flexibility that cannot be achieved with other forms of ownership.


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