What is a trust?

A trust has the effect of separating the legal and beneficial ownership of property and is a great tool to utilize in estate planning. Generally speaking, a trust is an obligation binding a person (a "trustee") to deal with property over which he or she has control (the "trust property") for the benefit of others ("beneficiaries"). With the exception of insisting that the trustees adhere to their responsibilities under the trust, the beneficiaries have no power or rights over the trustees.

Should a trust be expressly created through the use of a legally binding trust agreement, in order for it to be effective, it must have three essential characteristics:

  1. the language used by the creator of the trust (the "settlor") must illustrate their intention to establish a trust;
  2. the subject matter or property of the trust must be certain; and
  3. the objects or persons intended to have the benefit of the trust must be certain.

Trusts may be revocable or irrevocable by the settlor. A revocable trust is one that, by its terms, may be revoked or amended and the property comprising the trust may be returned to the settlor. In the alternative, an irrevocable trust cannot be amended or revoked by the settlor.

Some examples of some of the more common uses of trusts in estate planning include:

  • providing for maintenance and education of minor children or other persons to whom it is desired to give the property to, without powers of control or management;
  • providing for a level of financial independence for an adult child while delaying the time at which the child may gain full management or control of the property; and
  • implementing tax planning objectives.