A trust refers to a legal entity that is created to manage property for the benefit of another person. It is commonly used as a way to reduce estate taxes, protect property, keep assets away from creditors and avoid probate after death. A settlor, or trustor, is the person who creates a trust by transferring their property to a trustee. The trustee retains legal rights to the property, and the settlor no longer owns it. Trusts are most beneficial for people who have a large amount of assets that will continue to grow after a person’s death.

Trustees
The job of the trustee is to manage all property owned by the trust. The trustee must perform in the best interests of the beneficiaries and adhere to terms of the trust agreement. Trustees are required to keep financial records and provide information to beneficiaries. If the trustee mismanages funds in the trust, he or she may be responsible for replacing lost monies.

Beneficiaries
Beneficiaries are equal owners of the property and receive either income from the property or receive the trust property itself. They may receive varying amounts of income or property, and the trustor determines what each beneficiary gets.

Establishing a Trust
A trust is created through a written trust agreement, an oral declaration, a will or a court order. It must contain four basic components: a trustor, a trustee, money or property and a beneficiary. In the document, three things must be identified: an intention to create a trust, property that is subject to the trust and beneficiaries.

Types of Trusts
Two main types of trusts are living trusts and testamentary trusts. A person creates a living trust while he or she is still alive, while a testamentary trust is created according to instructions in a will. A living trust is commonly referred to as an inter vivos trust and is specifically created to save money during a person’s lifetime. Testamentary trusts are generally established to fulfill the needs of beneficiaries. In addition, a trust may be revocable, which can be amended, or it may be irrevocable, which can not be changed in any way.

An attorney who is knowledgeable in tax and estate planning can provide information and help establish a trust.