What Is a Trust?

Updated: Jul 23, 2020

You may have heard of a living trust, or a revocable trust. Perhaps at a social gathering someone said, “Oh, I have a revocable trust.” Or your wealthy friend boasts: “I have a charitable trust.” Meanwhile, you wonder to yourself, what the heck is a trust, living or otherwise, and where do I get one?

What Is a Trust

The first thing to realize about a trust is that it is not a “thing.” You can’t walk into a store, or a lawyer’s office for that matter, plunk down some money, and walk out with a trust in your shopping bag. The reason is that a trust is not an object, it is a relationship. As estate planning lawyers, we guide our clients in establishing and formalizing that relationship. We also help make sure they set up the right type of trust for their needs.

At the end of your engagement with your lawyer, you’ll walk out of his or her office with pieces of paper that have the word “trust” in the name (Lucy’s Revocable Trust, Ming Family Trust, etc.), but the paperwork merely memorializes the creation of a legal relationship between the parties that embody the common sense notion of trust. The papers also define the parameters and instructions to be followed by the trustee. We often use a shortcut and call it simply a “Trust” with a capital T, but the trust instrument itself, the paperwork that gets signed, is again just a memorial of the trust relationship.

Who Are the Parties in a Trust?

When someone creates a trust, there is often several parties involved. Notice that I used the term “parties.” The parties are not always individual people. The basic formula for a legal trust includes three parties: Settlor, Trustee and Beneficiary.

The “settlor” or “grantor” holds legal “title” to some property. It could be personal property, like money, or real property, like Blackacre Farm. (A word about “title,” an ancient concept in the law. Everything in the country is owned by somebody or some recognized entity, like a corporation, or, if no one else, the government. We call that ownership “legal title” and it is often represented by deeds or certificates of title in the case of cars.)

The settlor then transfers legal title to the trustee, by a deed or other instrument of conveyance, including the trust instrument (those pieces of paper we mentioned above). Now the trustee holds legal title to the property and is charged with the fiduciary duty to administer the Trust according to the terms of the trust instrument. The trustee can be an individual, a bank or trust company, a corporation —and there are other possibilities as well. But the relationship between the settlor and the trustee has been established as one of “trust.” Note that the settlor him/herself can also be the trustee and commonly is when it comes to revocables trust.

Finally, the trust relationship is established for a purpose, namely to benefit the beneficiary of the trust. Again, the beneficiary could be a person or persons, including the settlor, an entity like a church, even a favored pet dog or cat. The trust relationship is established so that the trustee will use the “trust estate” (the assets or property held in trust) for the benefit of the beneficiary.

Another interesting feature of ancient common law is that the beneficiary acquires an interest in the trust estate by virtue of being named a beneficiary of the trust. He/she/it enjoys an equitable interest in the property, the right to object and intervene in the administration of the trust when fiduciary duties are breached.

How to Set up a Trust

There are many kinds of trusts used for different purposes. Some are used to minimize estate taxes; others are established to protect minor children or to provide educational funds. It is our job as lawyers to discuss in depth your estate planning goals and see when and if a trust make sense as part of your plan.

Learn more about whether or not you need a trust, in our recent post by Attorney Erin Gallivan.

If you are considering setting up a trust let us know.

Schedule a free consultation.

Want to learn more?

Don't miss our article on Do I Need a Trust?

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