If you’ve thought about an estate plan, or a will you have likely heard the term trust. You may have even been told you NEED one. For many of people, “Trust” is a term that is thrown around but sometimes people are not exactly sure what they are referring to when they are saying “Trust”.
That’s why I am here!
A common explanation I hear my colleagues use is, “a trust is simply a relationship between a Trustee and Beneficiary”. While a completely true and accurate statement, I haven't found it quite helpful. Its probably becauseI am a visual learner, and I like to draw pictures to understand. I guess I could draw a picture of two people holding hands to show a relationship…
…but that still doesn't help me much.
I also love using analogies to explain things. An excellent analogy for a Trust is an empty bucket.
There are three types of people involved in the creation of a Trust: 1) Grantor; 2) Trustee and 3) Beneficiary.
The Grantor creates the empty bucket and puts assets inside the empty bucket. The reason I make a point to call it an empty bucket is because if you do not put assets inside of the trust, you could end up with just a really expensive empty bucket. This is why it is important to share information about your assets and how you desire to fund your trust with your attorney. They can help you.
The Trustee manages everything that is put inside of the empty bucket for the benefit of…. can you guess who?
The Beneficiary is the person who reaps the benefits of everything in the bucket (but they don't have any management control, because that is the Trustee’s job).
Does that help? I hope so. The is an over simplified way to explain a Trust, but it helps you get the picture (literally). Once you get this concept you can start adding more clay to the wheel and mold a trust that fits you just right.
The beauty of it all is if you are the Grantor, (the creator of the trust), you can make your trust as simple or complicated as you desire. We can create restrictions on how the Trustee makes distributions to the beneficiary (e.g. Trustee can only make distributions for the beneficiary’s college tuition), or we can allow for broad reasons for distribution (e.g. health, education, maintenance or support).
Next week I will discuss common reasons to have a Trust.