by Joseph Nicholson

Created on: January 09, 2009

A trust is a legal arrangement whereby one person or group manages property for another. Real estate, cash or any other asset is entrusted by the grantor, who creates the trust. Most often, but not always, the beneficiary of the trust is a person other than the grantor. A living trust is a way to pass assets along to children or other beneficiaries while avoiding the costs and time necessary to move a Last Will and Testament through probate court.

The manager of the assets in trust is the trustee, who operates under a fiduciary duty to the beneficiary. The possible structures of trusts vary widely, but a willing grantor, identifiable beneficiary, and specific property are the legal requirements for, and identifying marks of, a trust. In a living trust, the grantor names himself as the trustee, thereby maintaining control of the assets. A successor trustee is named to take control of the trust upon the grantor's death, when the beneficiaries usually become eligible to receive the assets of the trust.

To create a living trust, the grantor must transfer title to at least some assets to the trust. This can be a house, a car, other real estate, stocks or generally any other asset. The effect of creating the trust, however, is that these assets will have to be re-titled in the name of the trust. While drafting the trust document may not be particularly difficult or expensive, transferring the assets effectively may require the assistance of a legal professional. Living trusts can either be revocable or irrevocable. By far the most common is the revocable living trust, in which the grantor is the owner of the trust assets and is taxed on the income of the trust, usually as interest or capital gains. In an irrevocable trust, the grantor permanently departs with ownership and control of assets to the trust, which then becomes its own taxable entity. The irrevocable trust, thereby, receives tax breaks for income that is regularly distributed to beneficiaries, so can therefore be appealing if designed to generate income for a child's education or other specific purposes.

Any living person of sound mind can create a trust. In reality, however, trusts are usually only created by persons with significant assets, usually a million dollars or more. It may not be necessary or cost effective to create a trust to manage less, though anyone with real property concerned about the administration of their estate and seeking to avoid probate could benefit from a revocable living trust.

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