There are many different types of and purposes for trusts and a trust should be constructed to meet the individual goals of the person establishing it. A trust is a relationship between the settlor(s), the trustee, and the beneficiaries. A settlor (also called a donor, trustor, or grantor) is the person who creates the trust and transfers property to the trust. The trustee is the person who administers the trust according to the terms of the trust. The beneficiary is the person or entity who benefits from, or will benefit from, the trust. There may be more than one settlor, trustee, and beneficiary of a trust.
A trust may be created for almost any lawful purpose. A common reason for creating a trust is to provide for and protect someone. A property owner may want to convey property in trust to a minor child, to an individual who lacks the skills necessary to manage property, to an individual who is prone to use property in an excessive or frivolous manner, or to an individual who is susceptible to undue influence from others. Trusts are not one-size-fits-all. Trusts must be customized to carry out the individual settlor’s wishes.
Here is an overview of the types of trusts to consider:
- Revocable trust – A trust that can be amended or terminated by the settlor during the settlor’s life.
- Irrevocable trust – A trust that may not be amended or terminated after it is created; however, states that have adopted some version of the Uniform Trust Code may allow an irrevocable trust to be modified or terminated upon the consent of the settlor and all its beneficiaries.
- Testamentary trust – created within a last will and testament and does not take effect until the death of the testator (the person who created the will). As part of the testator’s will, testamentary trust is revocable until the death of the testator.
- Inter vivos trust – created by the settlor during his life and becomes operative during the settlor’s life. When the trust terminates, the property remaining in the trust is distributed according to the terms of the trust. The trust property does not pass pursuant to the settlor’s last will and testament. An inter vivos trust may be either revocable or irrevocable.