The Nature of a Trust

April 13, 2006

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While there are many types of trusts, that serve many different purposes including asset protection, they all share something in common.

A trust is a legal agreement among three parties:

the trustor (or settlor or grantor)
the trustee
the beneficiary

A trustor, or settlor, transfers legal title to some property to a trust, then a trustee manages the property for a beneficiary. A trust can have more than one beneficiary, trustee or trustor. Moreover, one individual may assume two or even three of the roles as trustor, trustee and beneficiary. Usually, in this case, the trust will provide for at least one contingent beneficiary, who will become an active beneficiary upon the death of the trustor.

For example, a husband and wife could, as co-trustors, transfer property to a trust with themselves as co-trustees, with the husband and wife both as life beneficiaries, and perhaps with their children as contingent beneficiaries of the remainder interest.

Further, a single trust instrument can establish multiple trusts. For example, the previously mentioned trust could provide that, upon the death of the husband and wife, individual trusts would be established for each child. Again, one person may assume all three roles in the trust.

Common trust factors to consider include the use of a revocable vs. irrevocable trust, as well as whether the legal agreement is a living or testamentary trust.