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Financial Answer Center

Trusts

Understanding Trusts

A trust is an entity that is equally separate and apart from the individual that is establishing it. A trust is also a separate entity for tax purposes. A trust is created when a grantor transfers property to a trustee for the benefit of another person. The trustee is responsible for managing the property for the beneficiary and distributing income and principal under the terms of the trust instrument. A trustee may be given explicit instructions or may be given broad discretion to make distributions.

There are a number of different trusts that that can be used in estate planning to accomplish your specific objectives. Properly structured, a trust can help you to reduce or avoid many of the fees and taxes that will be imposed upon your death.

Characteristics of a typical trust include:

  • It can be revocable or irrevocable by the grantor.
  • It can hold title to different types of property (in the name of the trust, while listing the trustee).
  • It can serve to divide up property interests among various persons in various ways for various lengths of time.
  • It may avoid probate.
  • It can be used to achieve significant tax advantages.
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