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Strabo Glossary: Trust



In finance, a trust refers to a legal arrangement in which one party, known as the grantor or settlor, transfers assets to another party, known as the trustee, to hold and manage the assets for the benefit of one or more beneficiaries. Trusts are commonly used for various purposes, including estate planning, asset protection, charitable giving, and managing investments.

Parties Involved

A trust involves three main parties:

  • Grantor/Settlor: The individual or entity that establishes the trust and transfers assets into it.
  • Trustee: The person or entity appointed to hold legal title to the trust assets and manage them according to the terms of the trust.
  • Beneficiary: The person or entity that benefits from the assets held in the trust. The beneficiary may receive income generated by the trust assets or receive the assets themselves at a future date.

Key Points

  1. Asset Protection: Trusts can be used for asset protection purposes, helping to safeguard assets from creditors, legal claims, or potential risks. By transferring assets into a trust, the grantor can create a separation between personal assets and those held within the trust, which may provide a layer of protection.
  2. Estate Planning: Trusts are commonly used in estate planning to facilitate the transfer of assets to beneficiaries and manage the distribution of wealth. Trusts can help minimize estate taxes, avoid probate (the legal process of administering a deceased person's estate), and provide for the smooth transition of assets to heirs according to the grantor's wishes.
  3. Charitable Trusts: Charitable trusts are established to benefit charitable organizations or causes. They allow individuals to make philanthropic contributions while potentially providing tax benefits.
  4. Living Trusts: A living trust, also known as an inter vivos trust, is created during the grantor's lifetime and can be revocable or irrevocable. Revocable living trusts allow the grantor to retain control and make changes to the trust during their lifetime, while irrevocable living trusts cannot be altered or revoked without the consent of the beneficiaries.
  5. Testamentary Trusts: Testamentary trusts are established through a will and come into effect upon the grantor's death. They provide for the distribution and management of assets according to the grantor's wishes as outlined in their will.
  6. Trust Administration: The trustee is responsible for managing and administering the trust according to the terms set forth in the trust agreement. This includes making investment decisions, distributing income or assets to beneficiaries, maintaining records, and filing tax returns, among other duties.
  7. Legal Framework: Trusts are governed by specific legal frameworks and regulations that vary across jurisdictions. It is important to consult with legal and financial professionals to ensure compliance with applicable laws and to structure trusts that align with individual needs and goals.

In Summary

Trusts offer a versatile tool in finance, providing individuals with options for managing assets, protecting wealth, and planning for the future. The specific type of trust chosen depends on the objectives of the grantor and the desired outcomes for the beneficiaries. Professional advice is typically sought to establish and administer trusts effectively.

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