A trust agreement has three players: the trust maker, the trustee and the beneficiary. A trust agreement (“trust”) creates a fiduciary relationship between the trust maker and the trustee. A trust is a set of written instructions that specifies how the trust maker wants the trustee to control the assets titled into the trust. A good way to think of a trust is away to own assets.
The trust maker is the person who creates and signs the trust. After the trust maker executes the trust, his or her assets are used to fund the trust.
A trustee can be an individual or a corporate trustee, such as bank’s trust department. A trustee controls the assets owned by or titled in the trust. What does this mean? A trustee may be able to sell stocks or liquidate a certificate of deposit in the trust. The trustee also can make distributions out of the trust to beneficiaries. Often, but not always, the trust maker and trustee can be the same person. The trustee has a fiduciary duty to hold and manage the trust’s assets based on and consistent with the trust maker’s instructions in the trust agreement.
A beneficiary is a person, persons, organization or entity that is entitled to a receive a benefit according to the instructions in a trust. The trustee is typically responsible for making trust distributions to the trust’s named beneficiaries.
Some trusts cannot be changed once the trust maker signs it. A trust that cannot be changed after signing is an irrevocable trust. Often, the trust maker is able to make changes to the trust or end the trust completely. When the trust maker dies, she cannot change or terminate the trust.
A trust, unlike a will, allows the trust maker to have considerable control over the trust assets while she is alive. A trust can avoid probate, avoid or reduce estate taxes, and provide beneficiaries asset protection. Estate plans can include both a will and one or more trusts.