What is a trust agreement?

A trust is a legal entity that is separate from the individual or individuals who created it. A trust is created by a document called a trust declaration or agreement. A trust agreement is made between the creator of the trust, called the grantor or settlor, and the party who will manage the trust, called the trustee. The trust agreement describes the purpose of the trust, and how the trustee must manage and distribute the assets placed into the trust. Such assets can include real property, tangible personal property, and cash. The trustee manages the trusts’ assets for the benefit of the beneficiary.

What type of trusts are used in estate planning?

A trust can be created for a variety of purposes. One of the two most common types of trusts used as part of an estate plan is called a revocable living trust. A revocable living trust is created while the settlor is alive. The settlor also serves as the trustee and is the beneficiary of the trust, while living, and is able to exercise complete control over all assets placed into the living trust. The settlor can revoke or alter the terms of the living trust at any time. Typically, most of the settlor’s assets are placed into the living trust, which then serves as the primary instrument for distributing the settlor’s assets after death. The primary advantage of a living trust, as opposed to a will, is that it allows you to avoid court involvement in the administration of your estate.

In contrast, a testamentary trust is created after the settlor’s death, typically through provisions in the settlor’s will. A testamentary trust can be used to manage assets for a beneficiary who is a minor, young, suffering from a disability, or not good at managing money. The trustee can manage the assets for the beneficiary either indefinitely or until certain conditions are met, such as the beneficiary reaching a certain age. Testamentary trusts often allow the trustee to make interim distributions for specific purposes, such as for the educational, housing, healthcare needs of the beneficiary.

The attorneys at Bartelt Grob are available to discuss in more detail whether a trust should be a part of your estate plan. Contact us for a free, no-obligation consultation.