A family trust, also known as a living trust or revocable living trust, is a legal document that permits the person who prepares it or has it prepared to make changes to it at will. This type of trust covers how a person’s assets are handled before and after death. These provisions can include anything from beneficiaries to property and cash allocations.
The main reasons this type of trust is popular is that it typically lowers estate taxes, avoids probate procedures and prevents public disclosure of a person’s assets and worth. Unlike a simple will, a family trust keeps all terms of the settlement private and protected from any government seizure or public scrutiny. A simple will may dictate the distribution of some of the decedent’s property but anything not specifically listed is subject to public probate procedures.
What makes a family trust unique is its structure. It generally consists of three main players, the grantor, the trustee and the beneficiary. Depending on the region in which it is prepared and who prepares it, the term grantor may be substituted with the words settlor, creator or trustor. The other two terms are generally consistent in all family trusts.
The grantor is typically the person who prepares the family trust, normally with the assistance of an attorney or legal professional who specializes in trust preparation. The trustee is the person entrusted by the grantor to protect the property. This person is generally expected to distribute the property to the beneficiary per the instructions and wishes of the grantor.
In a revocable living trust, the same person traditionally has all three roles when the document is prepared. This guarantees that the grantor’s power over the property at hand is not usurped by the trustee. The only way a trustee can gain control of the property while the grantor is still living is if the grantor is determined by law to be mentally incompetent.
Once the grantor dies, the trustee takes over. The trustee is lawfully compelled to distribute the property listed in the trust exactly as the grantor desired. At this point, the trustee may also become the beneficiary or one of the beneficiaries if the grantor has so directed.
Family trusts are generally preferred over other plans based on their typical simplicity. The powers of the grantor and trustee are normally considered irrefutable, so no room for challenges typically exists. Many people prepare their own living trusts with the aid of readily available educational books and Web sites. However, due to the sometimes confusing legal terms involved, it is commonly advised to engage the assistance of a professional to avoid uncertainty or mistakes.
