SOME TERMS AND CONCEPTS YOU WILL NEED TO KNOW

A trust is a creature of the law in which one party—the trustee—manages any form of property that has been transferred to the trust by the person establishing the trust—the grantor or settlor.� Think of a trust as an empty vessel into which the grantor "pours" property.� The property is known as the trust principal, or corpus.� The trustee has the very highest of legal obligations: a fiduciary duty to manage the property prudently and see that it is used only in a manner, and for the purposes, established by the grantor.� The persons or institutions (e.g., a charity) who benefit from the trust are its beneficiaries, named by the grantor in the trust document.� Trusts can be: Living—meaning only that they are established during the grantor's lifetime, or Testamentary—established by the action of a will.� Furthermore, a living trust can be revocable—subject to termination or modification at any time by the grantor, for any reason or irrevocable (unchangeable).�

Testamentary trusts are created by the action of a will through the probate process.� Since the deceased grantor is unable to change the terms of a trust created under his or her will, these trusts are always irrevocable.� However, while living, the grantor is certainly free to change his or her will, including any provisions for a testamentary trust that it will create.� Testamentary trusts might be accountable to and have to report to the court under state law.� The administration of a living trust does not require a trip to probate court, even after the grantor dies.�

If a trust is irrevocable, the grantor is unable to end the trust, modify its primary terms, or take back assets if plans change even in emergencies.� If that is an unacceptable condition, then don't even consider an irrevocable trust.

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The grantor may, however, reserve the right (personally, or for others down the line) to remove and replace the trustee for poor performance or to make other, small, administrative changes.�

An irrevocable trust is independent from its grantor, under the law.� It is a separate legal entity and must obtain its own tax identification number from the IRS.� It also is essential that the grantor and trustee recognize that an irrevocable trust cannot be used as the grantor's "piggy bank."� Any potential tax benefits could be jeopardized if the grantor has a significant interest in, or control of, an irrevocable trust.

Let's now take a look at the type of trust that has become increasingly popular in recent years, especially by folks anxious to avoid probate.