A family trust is an estate planning document which creates fiduciary relationship with respect to property that is transferred to the trust, subjecting person by whom the property is held (the trustee) to equitable duties to deal with the property for the benefit of other individuals (the beneficiaries). Among other things, a trust separates the right to control assets of the trust from the right to receive the benefits from those assets. In other words, the trustee controls the assets for the benefit of the beneficiaries.
Example of a Trust
A child inherits significant assets. A trust is created naming an adult as the trustee and the child as the beneficiary. The inherited assets are placed in that trust and the adult trustee controls the assets (e.g., makes investments, etc.) for the benefit of the child.
Key Players to Establish and Manage a Trust
A trust has three main categories of persons involved with it.
The Settlor: The settlor (or donor) is the person who transfers the property to the trust.
The Trustee: The trustee is the person who controls the property in the trust, for the benefit of the beneficiary.
The Beneficiary: The beneficiary is the person who is ultimately entitled to receive the benefits from the property of the trust.
A trust may have more than one settlor/donor, trustee, and beneficiary.
Revocable vs. Irrevocable Trusts
Trusts can be revocable (able to be cancelled or amended) or irrevocable. Revocable trusts can be cancelled or amended. Irrevocable trusts, on the other hand, are set in stone once formed.
Making a trust revocable or irrevocable has several legal and/or tax consequences.