A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for anothers benefit. The party who entrusts the right is known as the "settlor", the party to whom the right is entrusted is known as the "trustee", the party for whose benefit the property is entrusted is known as the "beneficiary", and the entrusted property itself is known as the "corpus" or "trust property". Trusts can be arranged for various purposes to achieve specific goals, and they are highly versatile instruments. Some common types of trusts include:
- Living or testamentary: A living trust is created during the settlor's lifetime, while a testamentary trust is created after the settlor's death.
- Funded or unfunded: A funded trust has assets transferred into it, while an unfunded trust does not.
- Revocable or irrevocable: A revocable trust can be changed or terminated by the settlor, while an irrevocable trust cannot.
Trusts are often associated with intrafamily wealth transfers, but they have become very important in American capital markets, particularly through pension funds and mutual funds. Trusts can also be used to provide for an underage beneficiary or someone who cannot manage their finances due to medical or other conditions. Having a trust can help ensure that wealth is used the way the settlor wants it to be, both now and for years to come, and trusts may also create other benefits such as tax efficiencies.
