Provided by Gale K. Zumpano, CFP®, CRPC® Trust Liaison Officer
What do you think of when you hear the word "trust"? The Rockefellers? The duPonts? The Morgans? The Gates? No doubt about it, in the minds of many people, trusts are associated exclusively with the very wealthy. Or, at least, trusts were so associated.
Times are changing. Over the past few decades, incomes have soared. And sizable estates have become commonplace. With these burgeoning incomes and estates has come a much more widespread interest in the role of trusts in financial planning.
Understanding, however, has not always kept pace with need. While trusts offer distinct advantages to a broader group of individuals than ever before, considerable confusion still exists concerning trusts and their uses. It behooves us, therefore, to take a closer look at trusts in general -- what they are, how they work, and what they can do for you.
What Is a Trust?
Basically, a trust is a legal relationship by which you, as grantor (or creator of the trust), transfer property to a trustee (usually the trust department of a bank like us) for the benefit of one or more beneficiaries. The trust document, drafted by your attorney, sets forth your desires as to the duration of the trust, the powers and duties to be given the trustee, the time and manner of the distribution of the trust income and principal, and the rights of the beneficiaries. And, while the trustee is given legal ownership of the trust property, the trustee is legally bound to manage, invest, and disburse that property in the manner you describe in the trust document.
Types of Trusts
Put simply, there is no such thing as a standard trust. Instead, every trust is tailor-made to fit the financial needs and goals of the grantor. Trusts thus come in several varieties. For instance, a trust may be testamentary (created by the grantor under his or her will) or living (created by agreement during the grantor's lifetime). Furthermore, a living trust may be either a revocable trust (a trust which can be altered, amended, or even terminated -- with all trust property returned to the grantor -- at any time) or an irrevocable trust (a trust that cannot be changed).