The best way to think of a trust is that it’s like a contract – a contract that controls what happens to your property. And just like with a contract, it’s the terms of the trust that are controlling.
A trust is a legal obligation that comes into existence when an individual or other legal entity (known as the settlor) transfers the legal ownership of assets – which may be of almost any type – to another person or persons (known as the trustee) to hold not for their own benefit but for the benefit of the beneficiaries who can be individuals or otherwise. It is essential that the transfer is gratuitous otherwise the transaction takes on the characteristics of some other legal entity.
A trust may therefore be defined as an equitable obligation, which binds the trustee to hold and deal with the trust assets for the benefit of the beneficiaries in accordance with the terms of the trust.
A trust agreement is simply your written instructions directing someone (the trustee) on how to manage your property (the corpus) for the benefit of your heirs (the beneficiaries).
The four components to a trust are the:
- Settlor, the person who creates the trust
- Trustee, the manager of the trust
- Beneficiary, the entities or individuals receiving benefits from the trust
- Corpus, the trust property/assets
Each of these four components is necessary to create a valid trust. For example, a trust without a corpus may not be valid. Therefore, most trusts are funded with an amount at the time they are created, even if the amount is only $1.00.
A trust is often an integral component of an estate plan. Determining the type of trust that is best suited for your specific estate plan should be based on considerations relating to your particular goals and objectives. We recommend that you consult an estate-planning attorney in your area to help with your specific details.