by Iris W

Created on: November 27, 2008   Last Updated: February 21, 2011

What is a trust?

A trust is an arrangement where a person or institution (trustee) holds and manages assets (trust property) for another person's benefit (beneficiary). The trust creator is called a trustor otherwise known as settlor, grantor, donor or creator. A trustee holds legal title to the trust property and is responsible of administrating the assets. The beneficiary is the person(s) or institution(s), as specified by the trustor, who will receive benefits or income from the trust property.

Types of trusts

Living trust

This is a trust established during the trustor's lifetime and  is the most common type of trust. The trustor may be both the trustee and beneficiary as well. Living trusts can be divided into revocable and irrevocable trusts. A revocable trust means that the trustor has the right to amend or revoke the trust during his/her lifetime. Contrary to that, the trustor gives up his/her right and control of the trust property in an irrevocable trust and cannot amend or revoke the trust without the permission of the beneficiaries.

AB trust

This is a revocable trust that allows a couple to maximize their use of Federal taxes and pass on the maximum amount of assets to the surviving spouse or their children after one spouse dies. Spouses also benefit from unlimited marital deductions.

Qualified Terminable Interest Property (QTIP)

This is another marital trust that qualifies for unlimited marital deductions, but is used in later marriages to control the trustor's assets when the spouse survives him/her. In cases where the couple divorces and one spouse remarries, this is would be useful to avoid unintentional disinheritance of the children.

Testament trusts

This trust created as part of a will and must conform to statutory rules that govern wills. This type of trust springs into existence upon the death of the person who made the will.

Spendthrift trust

Some people have a knack for spending recklessly. Spendthrift trusts can be created as a benefit for beneficiaries who are unable to control their spending. This trust would allow fixed disbursements of funds for a period of time as dictated in the trust agreement.

Special needs trust

This trust protects the assets for the disabled or mentally ill beneficiaries, while still allowing them to access government assistance. It is usually accompanied by extra advantages.

Benefit of having trusts

Wills

Trusts can act as extensions of wills. If you, the trustor, die or become incompetent,

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