What is a trust?

A Trust is a legal device and is a separate legal entity by which property is held by one person (the trustee) for the benefit of another (the beneficiary). The person who sets up the trust is called the settlor. The property that is held in trust is the corpus, or trust fund.

 

When a trust is established, title is split between the trustee, who holds legal title, and the beneficiary, who holds equitable or beneficial title. This separation allows the trustee to manage the trust property for the benefit of the beneficiary. Trusts are established to save taxes, gain privacy, provide the needs of young children, and prevent money from being squandered, among many other reasons.

 

Property is often placed in trust so that it will be preserved for future generations. In such cases, only the income is given out during the life of the trust, with the principal held in relatively safe investments. The rule against perpetuities prevents trusts (except charitable organizations/trusts) from lasting indefinitely. This rule in many states requires trust property to become owned by the beneficiary outright not later than 21 years after the death of some person alive at the creation of the trust.

The law relating to trusts has its origins in medieval England and has evolved over a period of several centuries to become one of the most effective tax and estate planning techniques available.