Trust is a legal arrangement between three parties regarding the management of assets for a beneficiary. This is commonly used in businesses or investments wherein more than one person has the capability to manage assets and finances. Read along to learn more about the basics of trust, its types and uses.
Who Are Involved In A Trust?
There are basically three parties involved in a trust. First is the trustor, a person who has the authority to give the trustee control over assets. He is the one who creates the legal agreement between the three of them. Second is the trustee, the person who is responsible to manage all the assets entrusted to him by the trustor. Last is the beneficiary, the one who receives all the benefits formed under the trust agreement. They are the ones who will receive the assets from the trustor, provided that these are managed by the trustee.
Purpose of Trust
Trusts have a variety of uses. Aside from managing a trustor’s assets during his lifetime and after death, trusts can also allow a trustor to benefit from these assets and properties on his lifetime. Trusts can also be used to endow assets to a beneficiary in an easier and less-taxed way. If you need assistance regarding trust tax return, don’t hesitate to contact the experts when it comes to managing tax and assets.
Types of Trusts
Trusts have almost the same basic structure. However, they have different types depending on their purpose. Here are the common types of trusts that are widely used.
- Living Trust – This type of trust is made during a trustor’s lifetime. In this case, the trustor continues to benefit from the trust while he’s still alive. However, when the trustor dies, all the assets and properties will be passed to the beneficiary with the help of the trustee.
- Testamentary Trust – This type of trust is made solely for the beneficiary upon the death of a trustor. A testamentary trust contains all the details on how the assets and properties should be passed on to the beneficiary and is usually done by an executor. This type of trust can’t be changed and everything must be done according to the trustor’s will.
- Funded and Unfunded Trust – This types of trusts can either have assets put into them or not, whether during the lifetime of the trustor or after death.
- Revocable Trust – This kind of trust can be changed anytime by the trustor himself. He can add, change or even terminate the trust upon his will. Living trust is one of the best examples of a revocable trust.
- Irrevocable Trust – Opposite to revocable trust, irrevocable trusts can’t be changed or altered once it is made. This means that all the assets and properties that are endowed to the beneficiary cannot be taken back by the trustor.
Trusts can be a little complicated at first but once you know all the basics, it will be a lot easier to understand how everything works.