Trusts

personalFinance-livingTrust-80617777

There are many factors at play in a trust. A trust is a relationship where one party benefits from property being held by another. A trust often involves three parties, one who initially transfers property to another (the settlor), one who holds the transferred property (the trustee), and a third who benefits from this (the beneficiary). In some cases the settlor and the trustee are the same person. In addition, the settlor may also in turn be a beneficiary. There are a variety of reasons a trust may be created, both by individuals who are still living as well as in someone’s will after they have passed on. Many kinds of properties can be held in a trust, though the most common are growth assets. Trusts are widely popular in current common law legal systems, especially those influenced by English law. The use of trusts has become very important in American capitol markets.

Creation

There are several ways in which trusts may be created. They may be created by a written document signed both by the settlor and the trustee, declared orally, through someone’s will, or by court order. Situations where the settlor expresses an interest in creating the trust are known as express trusts, whereas they are known as implied trusts when ordered by a court of equity. Certain assets may need a written document before they may be part of a trust. Most trusts require three certain conditions to be met, in addition to the method of creation. These are the clear intention to make a trust, the clear identification of the properties involved in the trust, and the clear identification of the beneficiaries of the trust.

Young child looking up at camera

Usage

Trusts are used for a wide variety of purposes. In some families, the privacy of trusts can make them ideal to use in a will. They often appear in wills for many other reasons, such as to leave properties or funds with specific family members. They also can provide great protection to beneficiaries who are unable to handle money properly. Many charities are required to be trusts as well. Pension plans are one of the most common forms of trusts, where employers are settlors and employees are beneficiaries. Trusts are important to the concept of asset protection as well, where an individual may disassociate themselves from their properties or funds to prevent them from being attacked by creditors. When ownership of a property belongs to more than one person, the co-ownership is set up as a trust. Additional uses for trusts include unit trusts, tax planning and in construction law.

Stakeholders

The main components of a trust are the trustee and the beneficiary. The trustee holds to most legal responsibility in the trust, since they must maintain the trust and protect the funds from any possible losses. If there are any losses, the trustee is held legally accountable. The duties of the trustee include investing, protection, accounting and tax returns. A trustee is by definition an unpaid job, though it is usually done by lawyers, bankers or other professionals, so an agreement is often set in place to give them a reasonable share of the trust. Beneficiaries are those who benefit from the trust. They own part of the property and in time receive either income tax for the property or the property itself. The terms decided by the settlor when creating the trust dictate how much the beneficiaries may receive.