The trust. For many people, trusts are an intimidating legal construct they don’t want to be bothered with, perhaps feeling as though it is a needless complication created by lawyers to make money. Although having a trust may not be appropriate for some families, it can be a stable platform with which to address a number of problems outside of a courtroom, ultimately saving money and heartache. Consequently, it has become central to most. Below, I touch on several common trusts, but please note, these descriptions are far from exhaustive on the subject.
But first, what is a trust? Well, imagine that the concept of ownership isn’t one right, it is a bundle of rights. If I own a piece of real estate, I have the right to sell it, to develop it, to live on it. These rights can be split from one another. For instance, I can rent the property to someone, so I no longer have the right to live on the property, but I still own it. I can transfer my right to sell the property by selling someone an exclusive option to purchase it, but still maintain possession of the property. This concept of fractured ownership rights is important to a trust.
The trust itself can be viewed as a separate, individual person. It can open a bank account, purchase land, invest in the stock market, etc. But of course, someone must direct it to do so. This person is the trustee. The trustee has the authority to direct the trust and to act on its behalf, which is the “ownership interest.” However, unless the trustee is also a beneficiary, he or she cannot use any of the trust assets for his or her personal benefit.