Estate Resources

What Is A Trust?

A trust is a contract. It's as simple as that. You can't see it or touch it, but it becomes a separate legal entity. It is represented by a written trust agreement. It is recognized by all fifty states and by countries around the world. Trusts have been in existence in the English and American legal worlds since the Sixteenth Century, and are actually older than wills. Most importantly, trusts are extremely powerful legal documents. In estate planning they are very useful for avoiding probate and guardianships, reducing or eliminating estate taxes, protecting estate assets from costly legal actions, and ensuring simple, quick, and efficient distribution of fam

Every trust must have three parties:

  • The Settlor - the creator, grantor, truster, or trustmaker
  • The Trustee - the person, persons, or companies charged with holding, owning, and managing the trust property
  • The Beneficiary - the person or persons who will benefit from the use of the property or the proceeds of the property

In Oklahoma and most states, the same person can serve as all three parties: settlor, trustee, and beneficiary.

The trust settlor/trustee/beneficiary has complete discretion over the investments and property of the trust, and can do basically everything through the trust that he or she had done as the original owner before the trust was created. A family need not give up control over their assets to gain the benefits of a Revocable Living Trust.

There are two types of Trusts:

  • An inter vivos, or Living Trust (LT), is created during the lifetime of the Settlor
  • A Testamentary Trust (TT) is created in the will of a Settlor, and takes effect after the death of the Settlor, upon order of the probate court

Trusts are often categorized by their characteristics:

  • In a Revocable / Grantor Trust, (LT), the Settlor serves as a Trustee of the Trust and reserves certain powers, such as the ability to amend or revoke the terms of the Trust. The IRS then treats the Grantor Trust as the alter-ego of the Settlor, and ignores the Trust for tax purposes during the Settlor's lifetime. This means that, for most living trusts, no separate tax returns will have to be filed for the trust.
  • An Irrevocable Trust, (TT or LT), cannot be changed once it is created. This type of trust is often used for special tax or asset protection purposes, as well as being used for insurance.
  • A Spendthrift Trust, (TT or LT), shelters an inheritance from the beneficiary's creditors, judgments, bankruptcies, messy divorces, and so forth. It is usally used with an heir that cannot or should not be allowed to manage the money or they will just loss it quickly.
  • A Grantor Trust, (LT), has the Settlor serving as a Trustee of the Trust and reserving certain powers, such as the ability to amend or revoke the terms of the Trust. The IRS then treats the Grantor Trust as the alter-ego of the Settlor, and ignores the Trust for tax purposes during the Settlor's lifetime. This means that, for most living trusts, no separate tax returns will have to be filed for the trust.
  • A QTIP Trust, or qualified terminable interest property trust, (TT), takes advantage of the unlimited marital deduction, but restricts the surviving spouse's ability to change the distribution of the trust after the spouse's death. QTIP Trusts are often used in second marriage situations.
  • A Dynasty / Legacy Trust, or perpetual trust, (TT or LT), is created in a State with an expanded or repealed Rule of Perpetuity, thus avoiding many of the estate and income taxes. Primarily used to ensure the continuation of family businesses or to insure behavior and influance future generations.

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