What is trust property?
Assets put into a fiduciary relationship between a trustee and a trustor for a named beneficiary are called trust property. Any asset, such as money, stocks, real estate, or life insurance policies, might be considered trust property. Other names for trust property include “trust assets” and “trust corpus.”
Understanding Trust Property
Generally, trust property is part of an estate planning approach that lowers tax obligations and makes asset transfers easier after death. Certain trusts may also shield assets against litigation or insolvency.
The trustees are responsible for administering the trust assets in the beneficiary’s best interests and in compliance with the trustor’s instructions. A trustee may be a private citizen or a business, such as a bank. In addition to managing assets for the benefit of another person, such as a son or daughter, a trustor—also known as a “settlor” or “grantor”—can act in this capacity.
Whichever kind of trust is formed, the person or entity acting as a trustee is subject to specific laws and regulations that control how that trust is run. Once assets are given to a trust, the trust officially owns the transferred property. The prior owner can no longer control or claim the assets under an irrevocable trust.
Trust Types
There are several kinds of trusts that people might set up. However, they usually belong to one of two types: irrevocable or revocable trusts.
Irreversible Trust
The trustor retains legal ownership and control over trust assets under a revocable arrangement. Because of this, if the trust’s value exceeds the tax-exempt level upon the grantor’s death, estate taxes may apply, and the trustor would be liable for paying taxes on the income those assets produce.
Unchangeable Trust
The legal ownership of the trust assets is transferred from the trustor to the trustee in an irrevocable trust. On the other hand, this implies that such assets are no longer a part of the person’s property, reducing the taxable amount of the person’s estate. Additionally, the trustor gives up certain rights to amend the trust agreement. For instance, once beneficiaries of an irrevocable trust are formed, they are often not subject to alteration by the trustor. With a revocable trust, this is not the case.
In certain circumstances, a trustor may be referred to as a grantor or donor.
Trust Payable on Death (POD)
A trust may be formed either while the grantor is still alive or after their passing. Payable on Death (POD) trusts, which distribute assets to a beneficiary upon the trustor’s death, fall under this category. Because property is transferred after the trustor’s death, this trust and others like it are often referred to as testamentary trusts. Following the trustor’s death, assets in these trusts go straight to the designated beneficiaries, saving money and time by avoiding the sometimes drawn-out and costly probate procedure. The legal procedure of confirming and allocating assets specified in a will is known as probate. A person’s will may also include provisions for these trusts.
Living Trust
A living trust’s assets may be moved while the trustor remains alive. For instance, many people set up bank accounts in trust for their children’s benefit or to assist with paying for their college education. To do this, a trustee closely oversees the assets stored in the account, yet the children still need to be granted total access to the money or the liberty to use the fund’s profits as they like. A unified Gift to Minors Act (UGMA) account exemplifies this structure. In some situations, beneficiaries—like children—could only access the trust’s assets and income when they reach a certain age.
Conclusion
- Trust property refers to the assets placed into a trust and managed by the trustee on behalf of the trustor’s beneficiaries.
- In some situations, trust property transfers tax obligations on the assets from the trustor to the trust.
- When a trustor dies, estate planning enables trust assets to go straight to the named beneficiaries without going through probate.
