A trust is a legal arrangement that allows groups of people to protect assets and avoid probate when someone passes away. It is a concept that has been around since the ancient Romans, but it was perfected in England during the era of the Crusades. If you are looking to create your estate, then a trust can be the best solution for protecting your family and your assets. If you decide to talk about a trust with an estate planner, then it is a good idea to know the basic terminology you will be dealing with.
The person who can appoint a trustee to be part of the trust. They can also remove trustees as they see fit, but they must provide a reason for removal.
A beneficiary is someone named in the trust to receive benefits when a significant event occurs. In most cases, the significant event would be the passing of the owner of the trust.
In writing, a protector is someone assigned to oversee the trustee and remove that trustee if the situation requires it. But in practice, the protector position has become overshadowed by controversy. A protector could be ordered by the courts to remove a trustee on behalf of the beneficiaries, which is something that could be done without a protector as well. Most trusts do not assign a protector, and it is possible that the protector position will become obsolete in the future.
The trust deed is the written legal structure of the trust that identifies the trustee, the beneficiaries, and the protector (if applicable). The deed also outlines all of the conditions of the trust and the assets it owns.
The trustee is the person or entity designated to operate the trust on behalf of the beneficiaries. The trustee is required to make all of the decisions regarding the regular maintenance of the trust including paying taxes and adding assets. The trust is set up to reimburse the trustee for any out-of-pocket expenses they incur while doing their job.
The settlor (also known as grantor) is the person or entity that owns the trust. This is who started the trust and who designates the beneficiaries.
The trustee is entitled with a right of appointment that makes it possible to appoint assets from the trust to a beneficiary when the situation requires such action. The most common example of an appointment of assets is when the grantor passes away and the trustee must distribute the assets of the trust based on the trust deed.
A trust can be a good way to put all of a group's assets under one legal structure and have those assets distributed when someone passes away. If you decide to talk about a trust with your estate planner, it helps to have a grasp of the basic terms associated with a trust to allow you to have a more productive conversation.
