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CandleFocus Glossary Editor
What is a Trust?
Trusts are a legally binding arrangement that allows a trustor, such as an individual or a business, to transfer assets and property to a trustee, who is responsible for managing them on behalf of a beneficiary, who is the recipient of the trust income and capital. A trust is a powerful tool used to fulfill a wide range of financial and estate planning objectives, including tax management, retirement planning, asset protection and longevity planning.
Types of Trusts
Trusts can be framed based on different factors such as funding, revocability, and who administers them. Broadly, trusts can be divided into six categories: Living or Testamentary Trusts, funded or unfunded trusts, revocable or irrevocable trusts.
Living trusts are trusts that are created during the trustor’s lifetime. In a testamentary trust, the trust is created through a will which, in turn, requires probate to be opened and the terms of the trust to be enforced.
A funded trust is one which has assets to its credit upon its establishment. On the other hand, an unfunded trust does not have any assets upon its creation.
A revocable trust is the one that can be revoked or amended at any time by the trustor, whereas an irrevocable trust is beyond the control of the trustor and cannot be modified without the permission of the beneficiary.
Uses of Trusts
Trusts can be used for a variety of purposes. It is possible to design a trust to protect assets, minimize taxes, provide for planned giving and manage investments of a beneficiary who is too young to manage their finances. Furthermore, trusts can be used to structure a business or create structures such as real estate partnerships and LLCs.
Conclusion
Trusts are an invaluable asset when used correctly and can be a great asset in estate planning. The versatility of the trust makes it an essential part of financial and estate management. With a trust, the trustor has control of the assets that are transferred and can dictate how they are managed and distributed. Being aware of the different types of trusts available and their distinctions can help you evaluate which trust is best for your specific needs.
Trusts are a legally binding arrangement that allows a trustor, such as an individual or a business, to transfer assets and property to a trustee, who is responsible for managing them on behalf of a beneficiary, who is the recipient of the trust income and capital. A trust is a powerful tool used to fulfill a wide range of financial and estate planning objectives, including tax management, retirement planning, asset protection and longevity planning.
Types of Trusts
Trusts can be framed based on different factors such as funding, revocability, and who administers them. Broadly, trusts can be divided into six categories: Living or Testamentary Trusts, funded or unfunded trusts, revocable or irrevocable trusts.
Living trusts are trusts that are created during the trustor’s lifetime. In a testamentary trust, the trust is created through a will which, in turn, requires probate to be opened and the terms of the trust to be enforced.
A funded trust is one which has assets to its credit upon its establishment. On the other hand, an unfunded trust does not have any assets upon its creation.
A revocable trust is the one that can be revoked or amended at any time by the trustor, whereas an irrevocable trust is beyond the control of the trustor and cannot be modified without the permission of the beneficiary.
Uses of Trusts
Trusts can be used for a variety of purposes. It is possible to design a trust to protect assets, minimize taxes, provide for planned giving and manage investments of a beneficiary who is too young to manage their finances. Furthermore, trusts can be used to structure a business or create structures such as real estate partnerships and LLCs.
Conclusion
Trusts are an invaluable asset when used correctly and can be a great asset in estate planning. The versatility of the trust makes it an essential part of financial and estate management. With a trust, the trustor has control of the assets that are transferred and can dictate how they are managed and distributed. Being aware of the different types of trusts available and their distinctions can help you evaluate which trust is best for your specific needs.