Understanding a trust

Once a client has identified whether a trust could benefit them, they often asks what a trust is and how they work.

A trust is a legal arrangement where someone, a trustee, is appointed to hold and manage assets that are placed in the trust on behalf of a beneficiary, a person who gets to use the assets. A grantor is the person who transfers assets to the trust by retitling them.

The practical advantages of a trust are gained from the distinction that is drawn between the formal or legal owner of property, the trustee, and those people that have the use or benefit of the property, the beneficiaries.

Those unfamiliar with the trust concept are often concerned at the prospect of transferring ownership of their property to a trustee. This concern can be alleviated if the trust concept and the distinction between legal and beneficial ownership is properly understood and it is clear that the trust is governed by a reliable trust law that can be enforced in a reputable jurisdiction.

Structure of a Trust

The person setting up the trust — you, in this case — may be known as the trustor, settlor or grantor.

The assets you place into it are called trust property. And just like with a will, the people to whom the property will eventually be granted are known as beneficiaries.

A trust is managed by somebody, typically a third party, known as a trustee. However, it’s also possible to name yourself as the trustee and maintain control over your assets by creating a revocable trust.