I deal with trusts, the entity, on a daily basis. But, let’s back up a little and take a look at what a trust is and then discuss some of the more creative uses of the trust device.
The “trust” relationship was created by the courts of medieval England when the Crusaders left town, leaving their properties in the charge of the neighbors. When they got back, sometimes fifteen years later, the neighbors had “adopted” the property. The courts said, no, you can’t “have” it, you can only manage it and then give it back when asked. Thus began the strange division of ownership roles known as “trust.”
So, a trust has a creator, called by different names like “trustor,” “grantor,” “settlor,” “creator,” and many others.
It also has someone (or company) that holds and manages the assets (called the Trust Estate), who is called the Trustee. He is personally responsible for every penny.
Then, there is the important person or organization, called the Beneficiary.
So, the Grantor established a trust entity for a particular purpose, puts the assets in the hands of the Trustee who manages and then distributes the income, and, maybe, the Trust Estate to the Beneficiary(ies).
Let’s look at some fun uses for these trusts.
We have all heard about “Family Trusts.” Those usually take the form of you setting up the trust, to be held and managed by you, as Trustee, for you as Beneficiary. What does that get you? Your family doesn’t have to tow the Trust Estate assets through the probate court, it appoints people that you want to manage things for your family, and then regulates the payout of the trust assets at specific times.
There are also trusts that are used to separate assets. For instance, if you are about to enter a second marriage and want to preserve some specific assets in which your new spouse will never have any marital property rights, you can isolate those assets in a trust and they will be safe.
Speaking of protection, there is a type of trust that can be used as part of an asset “protection” strategy. It isolates the asset(s) in a way that will keep your assets out of the hands of creditors.