In its most basic, a trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also referred to as a Grantor or Maker, who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. The beneficiaries may be current and/or future beneficiaries. Although you never have thought about it, you likely enter into trust agreements on a regular basis. Imagine, for example, that you are moving out of the country and you ask your best friend to hold onto your living room furniture until your nephew is able to come pick it up. In that scenario, you have created a trust agreement wherein you are the Settlor, your best friend is the Trustee, and your nephew is the beneficiary of the trust. To create a trust, you need the following five elements:
- Settlor – the person who creates the trust. A Settlor may also be referred to as the Grantor or Maker of the trust.
- Trustee – an individual or entity that administers the trust terms as well as manages and invests the trust assets. Most Settlors also appoint a successor Trustee in case the original Trustee cannot or will not serve.
- Beneficiary – a beneficiary is the person, entity, or even family pet that receives the benefit of the trust assets. A trust may have both current and future beneficiaries.
- Terms – created by the Settlor and may be anything that is not illegal or unconscionable.
- Funding – almost anything of value can be used to a fund a trust, including cash, securities, and real property.