What is a Trust?
A trust is a legal entity that holds, manages and disposes of property for the benefit of others according to the trust creator's wishes.
A trust can be either revocable or irrevocable. Revocable trusts are trusts that can be revoked at any time. Irrevocable trusts cannot be revoked and are more commonly used for more advanced trusts and asset protection trusts. Almost all trusts involve three categories of people: (1) Grantor(s); (2) Trustee(s); and (3) Beneficiaries. The same person can be the grantor, trustee and beneficiary at the same time.
A grantor, sometimes called a settlor, creates a trust entity with specific instructions on how to manage and dispose of property. The grantor then adds property into the trust through a process called "funding". Funding a trust requires the grantor to transfer title or give ownership of the property to the trust. In addition, the grantor defines who are the trustee and beneficiaries.
The trustee is the person or persons who manage the trust property according to the grantor’s wishes. The trustee follows the grantor’s instructions for how to handle the trust property. The trust documents create a fiduciary relationship between the trustee and the beneficiaries. The fiduciary relationship means the trustee is legally liable to the beneficiaries for any breach of the trust instructions. This means that the beneficiary will be able to sue if a trustee takes all of the trust assets and takes a lavish vacation or buys an expensive car for themselves.
The beneficiary or beneficiaries, is a person or persons that gets the benefit of the trust assets. This could mean that the trust assets pass directly to the beneficiary or the beneficiary could receive specific assets
The exciting part about trusts are that the instructions can be as simple or complex as the grantor wishes. As long as a trust is not created to commit illegal acts or go against public policy, the grantor can define their instructions however they desire. A grantor could instruct the trustee to hold all the assets in the trust until the beneficiary receives a PhD, travel to Italy or when the beneficiary turns 25.
The biggest advantage of a trust is that the transfer of assets avoids probate court and allows greater flexibility in deciding how the trust assets are used or passed on to the beneficiaries.
Want to learn more about a trust? Contact Nevada Trust and Estate Attorneys to schedule a new client consultation.
Protect your legacy.