The readers of our Pennsylvania Probate and Estate Adminstration Blog hear the word "trust" thrown around a lot. Our blog covers a wide range of issues that can arise in executing and administering a trust, but what exactly is a trust and who is involved in it?
In the simplest definition a trust is an estate planning tool that allows one person to transfer legal title of property to be held for the benefit of another. A good visualization is a chest or a box, but a trust is more of a legal arrangement and not a physical entity. Beyond that, there is a wide variety of options for what a trust can do under some basic structures.
After understanding the basic concept of what a trust is, the next step is understanding the parties in play in the execution and administration of a trust.
The first individual in play is the person who creates the trust. This person is often known as the trustor, settlor or grantor. This is the individual who owns the property and transfers the legal title into the trust agreement.
Second is the trustee. This is the person who is under a legal and fiduciary duty to administer the terms of the trust. For example, if a trust has strict limitations that it be used for the educational benefit of an individual, granting the use of money for an extravagant weekend in Vegas could be considered a breach of this duty.
Last, is the beneficiary. This is the individual that -- as the term implies -- benefits from the trust in some way or another.
While there are three parties to the arrangement, it does not mean that a trust involves no more or less than three people. A trustor may be a trustee or a beneficiary as well. There may be multiple beneficiaries and these don't even have to share the same interest in the property.
In our next post, we'll share more about what a trust is and how it can be structured.
Source: examiner.com, "Trusts," Craig Smalley, April 19, 2013