Most people know very little about trusts, in part, because they assume that trusts are only for the wealthy. This isn't true. Trusts can be used for a variety of important purposes, including taking care of family members after the trustmaker's death, arranging for the care of individuals with special needs and arranging for donations to an important charity.
In today's post, we'll discuss the two basic types of s, which are revocable and irrevocable. We'll also define some common terminology around trusts.
Let's start with terminology:
- Trustee: the individual who holds title to the property in the trust
- Beneficiary: the individual or group receiving the benefits placed into the trust
- Trust (as defined by FindLaw.com): "a right in property, which is held in a fiduciary relationship by one party for the benefit of another"
Now, we'll use the terms above to explain the difference between irrevocable and revocable trusts. We'll begin with the latter.
An irrevocable trust is created to be unchangeable, even by the trustmaker. After the creation of an irrevocable trust, it cannot revoked, altered or modified by anyone.
The other common type is a revocable trust, which can be revoked, altered or modified by the trustmaker, who is also the initial trustee. These trusts are created while the trustmaker is still living, and they often become irrevocable upon his or her death.
There are many more types of trusts that we haven't mentioned in today's post. But hopefully readers now have at least a basic understanding of trusts and how they work.