The world of trusts is fascinating, if not somewhat enigmatic. Trusts, in general, are an important part of estate planning because of the beneficial tax treatment of testamentary (arising as the result of a death) trusts. However, trusts are used by parents and others for a variety of specific purposes besides tax planning. Over the next few weeks, I will offer a brief introduction to some of the ways that trusts are used to protect a child’s inheritance.
What is a Trust?
Simply put, a “trust” is an arrangement under which someone holds property (such as bank accounts, investments, a home, etc.) for the benefit of someone else. There is a distinct separation between the legal owner of the property (the trustee) and the person who enjoys the benefits of the property (the beneficiary). The trustee functions as a caretaker who makes decisions about how the trust property is managed. The trustee owes a ‘fiduciary duty’ to the beneficiary which requires the trustee to manage the trust property prudently and in the best interests of the beneficiary even if detrimental to the interests of the trustee.
