What Is A Trust? The Simple And Easy Basics

What Is A Trust? The Simple And Easy BasicsWhat Is A Trust? The Simple And Easy Basics

Trust funds aren't just for the rich and famous. Learn about the different uses of trusts here.

Many of us have at one point or another wished to ourselves, "Man, I wish I had a trust fund." But what is a trust exactly?

What is a trust: In a nutshell

Trusts aren't just for the super-rich.  It's simply a tool you can use to manage your assets.

A trust is made by a trustor, who is sometimes called a settlor or grantor.

The person/entity responsible for managing the property in the trust is called the trustee.

And the people who receive the property in the trust are called the beneficiaries.

A trust is basically a legal document that details the rules you want to be followed for property you want to be held for your beneficiaries. You can put assets like cash, investments like mutual funds and stocks, and even real estate into a trust.

The two basic kinds of trusts

what is a trust

There are two basic kinds of trusts, but there are two basic kinds: the revocable and irrevocable.

A revocable trust can be altered, modified, or even revoked entirely during the lifetime of the trustor. These are often called living trusts.

An irrevocable trust, by definition, is one that cannot be altered, modified, or revoked after its creation. Once property is transferred into the trust, not even the trustor can take it out.

Why do people create trusts?

what is a trust

A trust fund is set up for the benefit of children or grandchildren, but there are many other different kinds of trusts that cater to different needs. Here are some common reasons to create a trust:

  • To reduce estate tax liability
  • To protect your assets
  • To give to charity (this also lowers estate and gift tax)
  • To avoid probate
  • To provide financial support to minors or individuals who aren't financially responsible

To learn more about the different kinds of trusts and which is more suited for your needs, consult an estate planning attorney.

Sources: The Balance, Dummies


We hope this article helped you understand what is a trust.

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