WHAT IS A TRUST?

Definition Of Trust

Trust is a legal document for estate arrangement. An estate owner creates a trust to settle his property according to his wish after death. This process is a three-person fiduciary relationship. The first-party or the estate owner gives responsibility to the second party or the trustee to settle and manage the property for the benefit of the third party or the beneficiaries. Also, trusts protect the estate from random claims after the death of the owner. The owner creates a trust of his estate legally and transfers it to the trustee. The trustee manages the property and settles that according to the trust after the owner’s death.

Purpose of Creating A Trust

The estate settlement process without any will or trust is complicated and lengthy. Also, the property cannot be distributed as per the wish of the owner without trust. A trust fulfils two primary purposes. Firstly, an estate owner can arrange and settle his property after his death. On the other hand, trust decreases the complications, high court expenses and time of the entire estate settlement process. Trust minimizes estate taxes and gives benefits offered by the government. Also, the tax liabilities of the probate process can be redacted by creating trust.

Classification of Trust

There are different types of trust, depending on some parameters. Here is the description of some types of trust briefly.

1.Living Trust and Testamentary

A living trust is created for the benefits of the estate owner during his lifetime. The assets of the person become a trust, and they are used for the owner’s needs. At the time of death, the owner transfers the assets to the beneficiaries. The testamentary trusts are created to fulfil the wish of the settlor after his death. The trustee does his duty mentioned in the trust and settles the assets.

2.Revocable and Irrevocable Trust

Based on term changing, trusts are of two types, which are revocable and irrevocable. Revocable trusts can be changed during the owner’s lifetime. But the irrevocable trusts cannot be altered once it is created. This trust is more desirable and beneficial. A living trust can be of these two types. Unlike a living trust, the testamentary only can be irrevocable.

3.Funded and Unfunded Trust

The trusts, which have assets and funding during the lifetime, are called funded trusts. An unfunded trust is created with an agreement of no funding. After the death of the trustor, the unfunded trust can become funded or can remain unfunded forever.

Elements of A Trust

A successful trust can be created with the four elements: reliability, competence, communication and integrity. Reliability plays a role in collective trusts. Competence maintains trust between the three parties of the trust. Communication between the owner, trustee and beneficiaries make the trust perfect. Without integrity, trust cannot be created on good terms.

Conclusion

A trust helps to avoid the complications of probate and also fulfils the wish of the estate owner. Hence, trust should be created in good terms considering all the parameters.

Author: Shweta Singh