Trusts are contractual arrangement among three individuals or entities. They were designed to transfer the ownership and/or control of an asset until the meeting of certain conditions. A simple example is when parents want to leave their home to a child but the child isn’t old enough to take care of it. And they are worried they might die before the child reaches an appropriate age. They therefore set up a trust that transfers the property to a trustee to hold on behalf of the child until he or she reaches an appropriate age, or gets married or whenever the parents decide.
There are MANY types of trusts used for MANY different purposes. But the basic mechanics are the same for all of them. Trusts are NOT business entities but in many respects can resemble them. However, because they transfer asset ownership they can help protect the asset from creditors for protection purposes. They are also established for tax purposes (estate and gift taxes) and the avoidance of probate litigation.
There are TWO types of trusts that we establish for our clients. First is the “Family Living Trust.” This is the typical trust that anyone can set up as an estate planning tool. It’s a crucial to avoid probate and allocate assets like real estate or business entities. Wills do not accomplish this.
The second type of trust we create is the Asset Holding Trust. Many real estate investors might know this as the “land” trust. While very similar there are some differences.
The Parties in a Trust:
In a basic trust there is a Grantor who initially owns the asset and grants (or gives) it to the corpus (the body) of the trust. The “trust” now owns the asset–not the Grantor. This is called funding the trust.
The Trustee is the person who is charged with handling the corpus (all the assets in the trust) and making sure the guidelines of the trust are followed. The guidelines can include how to manage the asset, grow it financially, or deliver the proceeds or the asset itself to the intended recipients. Finally, the Beneficiary is the party that receives the benefits of the asset (or the asset itself at some point in time) placed into trust.
TRUST TIP: UNLESS YOU ACTUALLY TRANSFER THE ASSET TO THE TRUST, IT ISN’T PROTECTED. SIMPLY SETTING UP THE TRUST IS NOT ENOUGH. TRANSFERRING THE ASSET IS CALLED “FUNDING” THE TRUST.
You can be both a grantor and beneficiary and even trustee. It depends on the purpose of the trust and what legal and tax considerations are most important.
A family trust and living trust are two common types for individuals that offer flexibility of controlling the asset and making changes down the road. An irrevocable trust is more rigid. While it is one the safest places to put an asset, there are restrictions on how you (as the grantor) can amend the trust or benefit from the asset. There are dozens of other kinds of trusts as well.
Breglio Law Office always consults with individuals before recommending most types of trusts.
However, a land trust is a simple vehicle for purchasing and transferring real estate and, in some cases, can be more efficient than using a business entity.
THIS INFORMATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE. PLEASE CONSULT AN ATTORNEY.