Beginning the estate planning process is often daunting for people who have little knowledge of the field. For many people, creating one or more trusts is an important step in creating a good estate plan, which is why it’s vital to understand what a trust is and how it works. If you don’t understand why you are doing something, you should always speak to your attorney and ask him or her to explain it so you understand it and know why it is important.
Trusts are like companies.
When you create a trust you create a separate legal entity that has the ability to own money and property. Like a corporation, the trust doesn’t physically exist. Instead, it’s a legal entity that you can create and then use for limited purposes.
Managers run trusts.
Just like a corporation, someone has to take on the responsibility of managing and running the trust. This person is known as a trustee. As someone who creates the trust, you, the trustor, get to choose who this trustee is. You also get to decide who will take over for the trustee once that trustee dies or is unable to continue managing the trust.
Beneficiaries get to use the trust property.
The other important element of a trust is naming one or more beneficiaries. When you choose a beneficiary you effectively choose who benefits from the trust property. This effectively means the beneficiary gets to use and benefit from all the property you transfer to the trust, while at the same time will not be considered the legal owner. There are a range of legal benefits from this type of relationship, which is why there are so many different types of trusts and why they are so often useful.