Definition of a Trust
In general, a "trust" is a legal entity that is able to own property and other assets. It is one of the oldest and best defined relationships known in the law. The Babylonians used trusts, and every society since then has used some sort of trust relationship. Essentially, it is established by a legal agreement defining how assets are going to be managed and distributed. Property can legally be transferred into the trust and have the trust own it. Different trusts have different types of classifications in the law and for tax purposes.
Roles in a Trust
One person (the "grantor") gives up property or "grants" property to another person (the "trustee"), who is "trusted" by the grantor. The trustee is trusted to take care of the property and use the property, not for himself, but for the "benefit" of a third person (the beneficiary). The terms "trustee" and "beneficiary" are standard in every trust. However, the term "grantor" is often times replaced by "settlor", "creator", or "trustor". Often times, one person takes on more than one role in the trust (and in a Revocable Living Trust, you will probably be the grantor, the trustee, and the beneficiary all at the same time).
The trust document tells the trustee what he or she is supposed to do with the property, and the trustee is bound by law to follow the exact instructions given by the trust. The trustee is bound by a "fiduciary duty" to handle the property exactly as the trust directs (sometimes the trustee is referred to as a "fiduciary".
The Revocable Living Trust (or Family Trust)
A Revocable Living Trust (also known as a Family Trust or Living Trust) is used primarily to avoid probate, reduce estate taxes, preserve your privacy, and manage your financial affairs.
A Revocable Living Trust is a trust established while you are living. It is revocable, so you are able to make changes whenever you want, as well as reclaim the property transferred into it. It describe how your property should be managed while you are alive, and how it should be distributed upon your death.
Avoiding Probate and Protecting Privacy
Normally, if a person without a trust dies, there must be a probate process to determine how to distribute all of the property held solely in the decedent's name. A Will can help the probate court to determine where the property should go, but does not avoid the probate process. In fact, one primary purpose of probate is to validate the "last will" if one exists. Probate is a public procedure and opens up an estate's distribution to the public eye.
When you have correctly set up and used a Revocable Living Trust, upon your death there will be no probate process. This is because the owner of the property (the Trust) did not die; just the person in the role of the grantor (you) and most likely the trustee (usually you while you are alive).
By a Different Name
In the Western United States, where the trusts are more popular, the terminology "Revocable Living Trust" is being referred to as an "LRT". Lawyers used to call the trust an "inter vivos revocable trust" (inter vivos is Latin for "between the living"). The Revocable Living Trust is also commonly called an "A-B Trust", a "C Trust", a "Family Trust", a "Shelter Trust", a "Common Trust", a "QTIP (Qualified Terminable Interest Property) Trust," and a dozen other names. Some books call it a "Loving Trust" because it is established for the people you love.
More Information on Revocable Living Trusts
Lee's book, Protecting Your Financial Future, gives you all the basic information for understanding Revocable Living Trusts, including:
and much, much more.
If you'd like to establish your own estate plan, the Accumulation and Preservation of Wealth System gives you all the knowledge and proper legal documents to properly set up, fund, and maintain your own Revocable Living Trust and other "tools of wealth".
Revocable Living Trust
Glossary of Estate Planning and Asset Protection Terms
Estate Tax and Gift Tax
Joint Tenancy / Joint Ownership Pitfalls
Lee Phillips Experience
Last Will and Testament