Trusts Terms and Definitions
Trusts have evolved over time and have their own language. Here are some of the more common terms you need to know.
- Grantor: Person giving property to the trust
- Trustor: Sometimes used instead of Grantor. Person creating the trust
- Trustee: Person in control of the property belonging to the trust. Holds legal ownership of the property
- Trust Estate: The property in the trust (remember an estate is a collection of stuff)
- Beneficiary: The person for whom the property is managed and cared for
- Trust document: The contract
- Revocable: capable of being cancelled or changed
- Irrevocable: can’t be cancelled or changed
My definition reads like this: “A Trust is a contract between the grantor and trustee where the grantor transfers title of assets to the trustee and the trustee manages the assets for the benefit of the beneficiaries according to the terms of the Trust document (contract).”
Advantages of a Trust
Trusts have many advantages:
- Probate Avoidance. Trust property skips probate
- Tax Planning
- Support children with special needs
- Protect children with addictions such as drugs, alcohol, and gambling against wasting the money
- Protect children’s assets against future divorce
- Lifetime asset protection
- Control from “beyond the grave”
Types of Trusts
Revocable Living Trust : This is a trust you setup during your lifetime and can be revoked at any time.
Testamentary Trust: This is a trust created by a Last Will and Testament.
Irrevocable Trust: You can’t revoke this trust. Once things go in, they stay in. Hard to change the terms of the trust without intervention.
Irrevocable Life Insurance Trust (ILIT): Designed to hold a life insurance policy to avoid estate tax on large life insurance policies.
Supplemental (Special) Needs Trust: Allows a person to maintain government benefits such as Medicaid and SSI while having extras.
Revocable Living Trust
- Established during your lifetime
- One of the most common probate avoidance trusts
- You maintain control after your lifetime
- You set the rules
- You can make provisions for children with addictions, bad marriages, in college and more
- You decide when and how the beneficiaries get the money and other property
- Great for blended families
- Fantastic for avoiding probate
- Incentives can be added
- For each semester my children in post high school education get a 3.0 grade point average, they are to be paid the sum of $1,000.00
- Upon graduation from college, the Trustee is to purchase from Trust funds a new automobile for Little Johnny not to exceed the price of $25,000.00.
- While my child is receiving an education, the Trustee is to pay tuition directly to the institution of higher learning or vocational education.
- My spouse is allowed to live in the house as long as they want. Great for blended families where one spouse comes into the marriage with a home they own.
- Restrictions can be put in place
- If my son is addicted to drugs, then the money is to be used for his health, education, maintenance and support only.