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What is a Trust Agreement?
A trust agreement is often called a declaration of trust. It is a legal document that describes the terms and conditions of how a person’s valuable assets will be repositioned, protected, held, or managed in the case of death or incapacitation. A trust is classified in two ways – living or testamentary. A living trust is created during the grantor's lifetime. A testamentary trust doesn’t become active until death.
The concept of a trust originated as a way for people to honor contractual agreements when transferring property or valuables from one person to another. The property or valuable can also be transferred to a corporate body or a charity. The person who holds the property or wealth is called the grantor, while the individual, corporation, or charity to which the property will be transferred is called the trustee or the beneficiary.
There are certain provisions and information included in trust agreements. This information includes a statement that details the purpose of the trust, the names of the individuals or entities that will benefit from the trust, and when the beneficiaries of the trust will be entitled to receive the wealth and property available in the trust.
There are several reasons why a person may be motivated to create a trust agreement. A trust agreement can provide asset protection and wealth preservation. The agreement can also eliminate estate taxes, and in some cases a person may even gain tax benefits because of the agreement. Trust agreements can also reduce potential frivolous lawsuits because the agreement clarifies where the wealth should be distributed.
Another advantage to a trust agreement is the privacy that the contract provides. Typically people create wills to distribute their assets after death. Unfortunately, a will becomes a public record once it is filed with the probate court, which means that anyone can access it. A trust agreement can keep a person’s affairs out of the public record. There is a misconception that these agreements only protect an individual’s assets at death. The agreement is also important in the case that a person is injured, incapacitated, or can no longer manage their assets on their own.
Trust agreements are complicated contracts and are usually created with the help of an attorney, who can create the contract in the way that minimizes any losses and provides tax advantages and legal shelter. Attorneys that specialize in probate and estate law can help a person craft a trust agreement that specifically caters to their financial needs.
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![A trust agreement is a legal document that describes the terms and conditions for how a person's valuable assets will be managed in the event of death.]()
By: Photographee.euA trust agreement is a legal document that describes the terms and conditions for how a person's valuable assets will be managed in the event of death.
Discussion Comments
Where can I find a copy of a trust agreement?
Can someone help me understand the difference between the living will and testamentary trust?
The article talks about a trust also being useful if you are no longer able to manage your property. Is that what a living trust is used for, while the testamentary only says anything about what to do after you die?
Also, is a living trust the same as a trust fund? I know that a lot of wealthier people set up trust funds for charities or for their family after they die. I think it somehow protects the beneficiaries from having to pay as much in taxes. Is this all included in a living trust, or are they separate things?
@JimmyT - As far as I know, there is nothing stopping someone from writing their own trust and it being legal as long as they follow all of the rules. There is a reason most people pay a lawyer for this process, though.
Like almost everything else that involves the law, there is tons of fine print and tiny details that could easily be overlooked or misunderstood. If you messed up only one part of the process, your trust could be worthless. To complicate matters, every state has different rules. I know for a fact that transferring property after death can get very complicated.
Besides a lawyer being able to make sure the trust is legal, he or she may also be able to help keep you grounded and make sure you are considering everyone who will be affected by your death.
@kentuckycat - I was curious about the online legal businesses, as well. I looked at one of the sites, and they have an option to create a living will. It looks like the price can get pretty steep depending on what types of services you need done. How much would a normal lawyer charge to prepare all of the documents?
I have never used one of the legal websites, but I'm not sure if the added hassle of working through the program would be any easier than having a lawyer fill in the blanks and you sign the paper.
I also wonder if there is any way to write your own trust. Are there exact standards that a trust has to follow to be legal, or could you do a little research and write your trust with the necessary components and have that used after your death?
What are the keys to picking a good lawyer who can write a trust? I think there are lawyers who specialize in this type of work, but how do you make sure that they are doing everything the way it should be done?
Also, I have seen a lot of advertisements and commercials lately about websites where you can set up your own will. Can you use these same types of services to create a trust instead of having to pay a lawyer? From reading this article, it sounds like a trust may be a little bit more complicated, so it would have to be something only a lawyer could do.
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