In very general terms, a trust is an agreement among three people.

• The grantor contributes property to the trust.
• The trustee owns the property and carries out the purposes of the trust.
• The beneficiary receives the benefits of the trust in accordance with the trust agreement.

One person can often serve as two of the three people in a trust agreement. That is, the same person can be the grantor and trustee, trustee and beneficiary, or grantor and beneficiary. It is even possible for the same person to be all three. The "person" does not even have to be a natural person. For example, the trustee can be the trust department of a bank and the beneficiary can be a charity.

Put it in Writing
A trust agreement should always be in writing with all of the terms and conditions clearly expressed.

A simple example of a trust might be your desire for your estate to be used for your minor child's education. You could include a clause in your will stating that upon your death, your estate is to be transferred to your brother to hold and to expend on your child's education. Then when your child reaches the age of 25, anything remaining in the trust is to be transferred to your child. In this example, you are the grantor, your brother is the trustee, and your child is the beneficiary.

As this trust is established by your will, it is a testamentary trust. You can create a trust that comes into effect during your life. This is called a living trust.

A trust should contain provisions of how the trustee should proceed (using the example above) if your child dies before reaching the age of 25 and the trust still contains money. Or how the trustee is to manage the money while your child is a minor, or whether the trustee is required to make annual reports to the court, and who would act as successor trustee if your brother were not available. The important purpose behind most trusts is asset protection, i.e., protecting the assets of the trust from being misused by the beneficiary.

For you, the grantor, one of the main benefits of creating a trust is that you can have control of distribution of the assets, not only during your lifetime, but also with some limitations during the life of your trust beneficiaries and beyond.

Asset Protection
Asset protection refers to a number of actions you can take to ensure that the estate you leave to your beneficiaries does in fact benefit them. The following table describes some of the ways that your testamentary gifts can be threatened and some of the steps you can take to provide asset protection.

Revocable Trust
In a living, or revocable trust, you name yourself as the grantor, the trustee, and the current beneficiary. You then transfer some or all of your assets to the trust. The terms of the trust require that the trust is to be used for your benefit during your life. After your death, the living trust continues for the benefit of your intended beneficiaries. There are many reasons that you might want a living trust. Some of them are:

• Assets held by the trust are not probate property and are not subject to the probate process.



• You can name a successor trustee so that if you are incapacitated, the successor trustee is directed by the trust agreement to follow your wishes.



• At your death your successor trustee follows your wishes.You might direct that the trustee hold certain funds in trust for the education of your children, with any remaining funds payable to them when they reach the age of 30.



• Because the living trust is revocable, you can change the trust agreement if you want to. You might consider a change at marriage, the birth or death of a child, divorce, death of a spouse, or the desire to benefit someone not benefited by the original trust agreement.

Advantage to a living trust for real property
Probate must be held in every state in which the decedent owns real property. Normally, if a service member owns a house in one state, the family farm in another state, and is domiciled in a third state, three probates must be held-one in each state. If the house and farm were placed into a living trust during the service member's life, the only probate that would be necessary would be one in the state of the service member's domicile.

A living trust is more flexible than a durable power of attorney because it can continue after your death. A living trust also acts as a probate-avoidance device after death because trust assets are distributed according to the terms of the trust, not the will, and therefore are not included in probate distributions.

Often a living trust is written so that during the grantor's life, the grantor and the grantor's spouse are the beneficiaries. If the spouse is surviving at the death of the grantor, the spouse becomes the beneficiary. At the death of the spouse or if the spouse doesn't survive the grantor, the children become the beneficiaries for the remaining assets. Sometimes the assets are held in trust to pay for the children's education and support. Then when the children reach some milestone, such as graduating from college, the remaining assts are distributed to them. Other people leave assets in long-term trusts for their children to protect the inheritance from the children's creditors.

Marital Trusts
A marital trust is used to benefit the surviving spouse of the person who dies. There are many reasons for creating such a trust-- to provide asset protection for the surviving spouse, or to ensure that your children are the ultimate beneficiaries of your estate. Remember that if your spouse remarries after your death, and you leave your entire estate to your surviving spouse, their new spouse could make claims on the inheritance you had left, either in a divorce or by demanding a share at the death of your surviving spouse. If you leave the inheritance to your spouse in a marital trust, the assets would be protected from the claims of a subsequent spouse.

In today's world, there are many "blended" families-families with stepchildren. In such families, the natural parent of the children often wants to ensure that his or her children ultimately receive the benefit of that parent's wealth. The natural parent can provide a marital trust that provides for all income from the estate to go to the surviving spouse (the stepparent of the children). Then, upon the death of the stepparent, the remaining assets go to the children. In this manner, the surviving spouse is not disinherited and the estate ultimately goes to the children.

Trusts for Children
You can set up a trust for your children, too. The terms of the trust can specify which of the children's expenses to pay and under what circumstances. Normally, these trusts are used to provide for the support of minor children, and the expenses paid are those incurred by the guardian in providing for the children. For older children, these trusts are often used to pay for the children's education and medical expenses until they reach a certain age or graduate from college.

Spendthrift Trusts
A spendthrift trust is created specifically to provide asset protection for the beneficiary. These trusts are written so that the beneficiary can receive the benefit of the trust, but have no right to demand benefits from the trust. Often the trustee has the power to provide for the beneficiary by paying the beneficiary's living or other expenses directly to the provider. This means that the beneficiary never has control of the benefits. This can be done to keep the benefits away from creditors or from a beneficiary who cannot be trusted with money.

Many trusts can have spendthrift provisions added to them to provide this asset protection for the beneficiary.