What is a Trust？

A trust is a legal tool that you can use to deposit money for someone's benefit without having them use the money entirely。It provides you with a way to make certain regulations on the use of funds or ensure the safety of funds until the recipient can handle and manage the funds on his own。

To set up a trust, you (the principal) need to draft a legal agreement and hand over the funds to a third party (i.e. the trustee)。The trustee holds and manages the funds in a manner that you agree to in the legal document。Individuals who benefit from trust funds are called trust beneficiaries.。

A trust is usually part of a will that you create for the benefit of your children, grandchildren, or anyone else you wish。

Trust takes many forms and can be used for many purposes。

In the financial sector, a trust may refer to a closed-end fund。

What is the purpose of the trust?？

A trust is a way to set aside funds for personal gain but give them restricted access to the money。Trusts serve many purposes。

One of the most common reasons for establishing a trust is to pass on ownership of assets without expecting the recipient to manage them。For example, if you want to give stocks or other investment gifts to your grandchildren under the age of 18, you can use a trust and appoint someone who knows how to manage these investments (such as the child's parents) as the trustee。Parents can manage the account until the beneficiary is 18 years old and can receive the money。

The trust can also control access to the funds you donate。Imagine that you save money for someone's education and want to make sure that the money is used the way you expect it to be。You can set up a trust for that person and ask the trustee to pay tuition only。

You can also use trusts to reduce disputes in the event of death and leave money to future generations。Trusts may be more resistant if someone tries to question your wishes。If set up before your death, they may also avoid probate (the legal process by which a court confirms the validity of a will), ensuring that your offspring get funding faster。

There are also trusts specifically designed for charity.。You can use a charitable trust to designate certain assets for a charitable foundation while maintaining the use of these assets throughout your life。For example, you can put a painting in a charitable trust while keeping it at home。When you died, the painting became the property of the charity。

What is a living trust or testamentary trust?？

Living trusts are trusts created while the settlor is alive and they are designed and in effect while the settlor is still alive。An example of a living trust is a trust set up by parents to hold stocks and bonds for their children until they are old enough to manage their investments。

A testamentary trust is a trust that takes effect on the death of the settlor, usually established in accordance with the settlor's will and the conditions set out in the will.。

What is the difference between a revocable trust and an irrevocable trust?？

A revocable trust is a type of trust in which the settlor can revoke or change the terms of the trust, which means that the settlor can add or remove beneficiaries, add or remove assets, or close the trust entirely at any time。

Irrevocable trusts are the opposite.。Once an irrevocable trust is created, the settlor cannot change it, which greatly reduces their control over the trust, but it has other benefits。For example, irrevocable trusts may offer different tax treatment than revocable trusts。Income earned by a revocable trust is usually taxed as part of the principal's income。Irrevocable trusts can be taxed as their own entity, which reduces the tax owed。

A settlor of a revocable trust may act as a trustee, but not as a trustee of an irrevocable trust。

When the settlor of a living trust dies, if the trust is revocable, it automatically becomes irrevocable。The principal is no longer alive and no changes can be made to him。

The trustees of a testamentary trust can change it at any time, as the trust will only take effect after their death。A testamentary trust, once in force, is irrevocable。

What is the difference between a fund trust and a non-fund trust?？

A fund trust is a trust in which assets have been placed; an unfunded trust is a trust in which there are no assets。

In some jurisdictions, a principal may establish a trust without placing any assets in it。The settlor may choose to fund or not fund the trust in the future。Unfunded trusts can be funded at any time the settlor wishes, including when they die。Unfunded trusts can be established by principals who want the trust to be usable, even if they cannot immediately fund it。It just lets them complete the paperwork for setting up the trust ahead of time.。

What are the benefits of trust?？

There are many benefits to using a trust。

One of the main benefits is the tax treatment。When you die, you can use the trust to transfer the extra money to future generations, potentially reducing inheritance tax。You can also use trusts to reduce your tax liability when giving gifts。

In addition, trusts give you more control over how your funds are used。If you just give your money to your loved ones, they can use the money as they please。If a trust is established, the use of funds can be restricted。For example, you can ask the person to be hired to receive funds from a trust or ask them to pursue higher education。

If you set up a trust before you die, you can help your offspring get their inheritance faster。Money in trusts can skip the probate process, which can be lengthy。

What are the types of trusts?？

There are many types of trusts, but there are four common examples。

An anti-profligacy trust is a trust designed to benefit those who have difficulty controlling their spending, and the trustee has the power to control how the beneficiaries use the funds。It can also potentially protect trust funds from creditors if the beneficiary is heavily indebted。

A charitable trust is a trust designed to help principals make donations to charity.。They can be for the benefit of one or more charities and provide an opportunity for the principal to make a charitable donation without immediately deciding which charity will receive the funds。

Special needs trusts can be established to benefit people with disabilities, helping to cover beneficiaries' costs while maintaining beneficiaries' eligibility to participate in government programs。

Tax avoidance trusts can be used to help the deceased leave money to their spouse while potentially reducing inheritance tax。Money is deposited into a trust upon the death of the principal, naming his or her spouse as the beneficiary。