Trust law facts for kids
In law a trust is a relationship where property is held by one party for the benefit of another party. A trust is created by the owner, also called a "settlor", "trustor" or "grantor" who transfers property to a trustee. The trustee holds that property for the trust's beneficiaries. Trusts exist mainly in common law jurisdictions. They have existed since Roman times.
Basics of trusts
When an owner of property places that property into trust, he or she turns over part or all of his or her rights to the trustee. This separates the property's legal ownership and control from its settlor's ownership and benefits. This controls the property and its benefits if the settlor is absent, incapacitated, or dead. Trusts are frequently created in wills, defining how money and property will be handled for children or other beneficiaries.
The trustee is given legal title to the trust property, but has an obligation to act for the good of the beneficiaries. The benefits of the trust belong to the beneficiary. The trustee may be compensated and have expenses reimbursed. But the trustee must otherwise must turn over all profits from the trust properties. Trustees who don't do this are self-dealing. Courts can reverse self dealing actions, order profits returned, and impose other sanctions.
The trustee may be either a individual, a company, or a public body. There may be a single trustee or multiple co-trustees. The trust is governed by the terms under which it was created. In most jurisdictions, this requires a contractual trust agreement or deed.
Testamentary trusts transfer property into the trust after the death of the settlor. The trust allows the settlor to specify any conditions and may spread payments from the trust over a period of time. Testamentary trusts are not automatically created when the settlor dies but may be specified in will. Because it is a provision of a will it must go through probate.
A living trust is more complicated than a testamentary trust. Many people use a living trust to avoid probate, which it does. But you cannot use living trusts to name guardians or executors (executrix for a female executor) for your children. Either requires a will.
A living trust provides property management both during the settlor's lifetime and after death. Living trusts may be used to manage property. If the owner is incapacated, disabled by an accident or illness, or is unavailable to manage the property the trustee can manage the property.
Advantages of a living trust include:
- Avoiding probate or court intervention with regard to a person's assets
- Can plan for future events that may affect property
- Control what happens to assets after death
- Can be used for any size estate
- Can be used to keep financial affairs confidential
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