A trust is a document that creates a fiduciary relationship between the person who holds title to property and the person for whose benefit the property is being held. In the estate planning context, a trust can serve a variety of purposes, including:

• To protect property for beneficiaries;
• To manage investment assets;
• To avoid guardianship of the property and probate for the property owner;
• To avoid guardianship and probate requirements that apply to property transfers to minors and other incapacitated individuals;
• To assure privacy in the transfer of property at death;
• To use a document which may have greater chance of withstanding a challenge of lack of capacity or undue influence than a Last Will and Testament alone would; and
• To reduce taxes.

There are two categories of trusts, ones that are created during life (inter vivos trusts) and ones that are created at death (testamentary trusts). A variety of inter vivos trusts can be created, some revocable (changeable) and some irrevocable (not changeable). The following is a glossary of trust terms and types of trusts:

Beneficiary:

The person who receives property from the trust.

Charitable Remainder Annuity Trust (CRAT):

A charitable remainder trust in which the named beneficiaries receive a fixed payment of not less than five percent of the fair market value of the original principal over the course of a specified period after which the remaining principal passes to charity.

Charitable Remainder Trust:

A trust in which individuals are named as beneficiaries to receive income for a period of time (as the lifetimes of the beneficiaries) after which the principal passes to charity.

Charitable Remainder Unitrust (CRUT):

A charitable remainder trust in which the named beneficiaries receive payments of a fixed percentage and not less than five percent of the value of the trust assets as determined annually for a specified period after which the remainder passes to charity.

Charitable Trust:

A trust created for the purpose of performing charity or providing social benefits A charitable trust may have a specific charitable purpose without having specific charitable beneficiaries; it may exist in perpetuity without ever distributing outright to any particular charity.

Credit-Shelter Trust:

Synonym for "Family Trust". (See above.)

Crummey Trust:

An irrevocable trust created to qualify gifts to the trust for the annual, federal gift tax exclusion (currently $11,000). The word "Crummey" refers to a legal case and stands for the principal that in order for a gift to an irrevocable trust to qualify as a gift of a present interest thereby allowing the donor to use his or her annual exclusion from gift tax, the trust beneficiary must be given a certain amount of time (usually 30 days) to withdraw all or a portion of the amount gifted to the trust.

Family Trust:

A Trust established to benefit one's spouse, children and/or other family members. Often used in reference to the By-Pass Trust discussed above.

Fiduciary:

A person or corporation who occupies a position of trust and accountability (e.g. Trustee, Administrator, Personal Representative, Executor, Guardian, Conservator).

Funding (a trust):

Transferring legal title of one's assets to the Trustee of a Trust.

Grantor:

The person who creates a Trust. Also referred to as the "Settlor" of the Trust.

Insurance Trust:

An irrevocable trust established to own life insurance on a person, which if properly administered will have the effect of keeping the proceeds of the life insurance out of the insured's estate at the time of death.

Inter vivos:

Literally "during life," this term is generally used to refer to a transfer made during someone's lifetime, specifically to a "living" (revocable) trust that was created during the lifetime of the grantor. (A testamentary trust is created by a decedent's will and comes into effect after the decedent's death.)

Irrevocable Trust:

A trust that cannot be revoked, modified or amended once it has been established. Irrevocable trusts are often used in tax planning to get property "out" of a person's estate so that it will not be subject to estate tax upon his or her death.

Marital Trust:

Trust established to hold the surviving spouse's share of property upon the death of first spouse to die. In order to qualify for the estate tax marital deduction, this trust must this trust meet certain criteria that will ensure taxation in the surviving spouse's estate. Generally, this type of trust is used to defer estate tax until the second death as between a husband and wife. (See QTIP Trust)

Pour-Over Will:

A Will used in conjunction with a Revocable Living Trust to dispose of any property owned by the decedent at time of death which was not transferred to the Trust. The Trust instrument contains detailed instructions relating to the distribution of the property. Like all Wills, a Pour-Over Will must be admitted to probate to be effective. The Pour-Over Will is executed as a safety "catch all" in the event the decedent did not successfully transfer all assets to the Revocable Trust during life.

Qualified Domestic Trust (QDOT):

A marital trust used for the benefit of a non-U.S. citizen spouse containing special provisions specified by the Internal Revenue Code such that transfers to the QDOT qualify for the estate tax marital deduction.

Qualified Personal Residence Trust (QPRT):

An Irrevocable Trust established to hold title to one's residence. The owner transfers ownership of the house to the trust, retaining the right to reside in the home for a period of years.

Qualified Terminable Interest Property (QTIP):

In order for property passed to a surviving spouse to qualify for the marital deduction from estate tax, thereby deferring the estate tax until the second death as between the husband and wife, the property must be of a nature that will cause inclusion in the survivor's estate, e.g. joint property. However, it is possible to put property in a trust where the surviving spouse has use of the property but cannot control its ultimate disposition (useful for a second marriage). In order for this trust to qualify for the marital deduction, there needs to be restrictions on who can benefit from the trust during the spouse's lifetime and what the spouse is entitled to receive. The Internal Revenue Code sets forth the requirements to qualify as a QTIP interest. Very often, a "Marital Trust" is also a QTIP Trust, referred to as a "Marital QTIP."

Revocable Living Trust:

A trust established by an individual, or a married couple, that becomes effective immediately upon establishment while the Grantor is still ; it remains revocable and amendable during the lifetime of the Grantor. This type of trust is used to avoid probate, minimize estate taxes, provide for management during periods of incapacity without the need for guardianship and provides for ultimate distribution of the grantor's estate.

Settlor:

Same "Grantor."

Special Needs Trust/Supplemental Needs Trust:

A trust established for a disabled person to provide supplemental support without disqualifying the beneficiary from eligibility for governmental assistance programs.

Spendthrift Trust:

A trust that is created for the benefit of someone who the Grantor thinks would otherwise squander all of the money. The beneficiary can be paid income from the trust, but it cannot be reached by the beneficiary's creditors.

Successor Trustee:

The trustee who "takes over" upon the death, disability or resignation of the original trustee or a prior trustee.

Testamentary Trust:

A Trust established in a person's Will. A Testamentary Trust only comes into operation after the Will has been probated and the assets have been distributed in accordance with the probate court order. In many states, Testamentary Trusts remain subject to the jusridiction of the probate court.

Trust:

An agreement between the grantor and the trustee, naming the trustee to control the grantor's property, or some of it, for the benefit of a beneficiary. The beneficiaries hold "equitable title" to those assets. The trust agreement defines the trustee's powers and duties. Trusts of various types are frequently used in estate planning to achieve tax, financial, and personal objectives.

Trustee:

A person or corporation appointed by the Grantor to manage and distribute Trust assets in accordance with the terms and conditions specified in the Declaration of Trust. A Trust may have one or more Trustees (Co-Trustees) who act together.

Trust Estate:

The assets transferred to the Trustee by re-registering their legal titles in the name of the Trustee of a Trust. The Trust Estate can include real estate, bank accounts, stock, bonds, brokerage accounts, partnership interests, tangible personal property, and many other types of financial and legal interests.

Do You Have Questions? Use the Quick Contact Form below to send your question today.