A trust is a document that a person makes during that life that ensures that their assets can be passed on to their beneficiaries after their death. The assets that are put into a trust now belong to the trust and are subject to the rules and regulations of the trust contract.
In a nutshell, a trust forms a fiduciary relationship between two people or a bank and a person, wherein one person has the right to the money or property in the trust. Seeking the guidance of a Ridgeland estate lawyer can help determine the right trust for you.
Who is involved in the contract?
A trust is a three-party contract.
- Trustor Grantor: This is the person who makes the trust with their assets.
- Trustee: This organization has a fiduciary relationship between the trustor and the beneficiary of the trust. They take care of and hold onto the assets but are not the owners of the same.
- Beneficiary: These are the people getting the benefits from the trust. This does not have to be just one person.
Common types of trusts.
Without trust, a family may face conflicts on how to divide the trustor’s assets. The family will also have to deal with high costs such as taxes and probate costs. There are many types of trusts, some of which are listed below:
- A Revocable trust.
As the name suggests, in this type of trust, the trustor or grantor has the right to change, alter or revoke the trust altogether. In this, the trustor transfers the property to a trust and acts as the trustee initially. They can remove the property from their trust during their lifetime. It is also known as a living trust.
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- An Irrevocable trust.
Unlike a revocable trust, this trust cannot be altered or changed once it has been created unless under some special circumstances. An irrevocable trust receives benefits such as protection of assets from creditors and lesser taxes. These trusts are not owned by the trustor and therefore are not considered as a part of their assets.
- A Testamentary Trust.
This trust is made out of the will of a trustor. After the death of a trustor, the person’s will is validated in court. Once this is done, an irrevocable trust is made based on the person’s instructions in their will. This type of trust helps the person save money as they do not maintain their trust during their lifetime.
- A Charitable trust.
These trusts help benefit a charity or, sometimes, even the public in general. These trusts help reduce tax impositions as a part of a person’s estate plan. Another advantage is the fact that charities almost immediately honor the people who name their charity as a beneficiary of a trust.
- A Bypass trust.
These trusts are two trusts in one and are made so that one spouse can leave funds for the other while minimizing taxes payable on the second spouse’s death. It is used by couples who are wealthy to plan around estate taxes. The trust usually passes to the second spouse without taxes. Still, only the assets above the limit are charged with taxes when it passes to beneficiaries other than the second spouse.
Thus, we have seen a few of the available types of trusts. Each family has different dynamics, and the grantor or the trustor must consider their family and loved ones before deciding on which trust they wish to choose.
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