While trusts are a common tool used to transfer wealth within families, protect wealth, and reduce taxes, there’s often a prevalent lack of understanding about what a trust is or how they operate. As is evidenced by the situation that many legal professionals find themselves facing – clients questioning the specificities of a trust, its creation, and modus operandi.
A trust, put simply, is a legal arrangement that entrusts property or assets to a third party — the trustee — who then holds that property for the benefit of others – the beneficiaries. It serves as an invaluable device for the preservation and managing of a substantial amount of wealth.
Creating a trust involves three steps: first, the person wishing to create a trust (the settlor) transfers his/her assets to the trustee. Second, the trustee accepts the transfer of assets and the accompanying obligations to protect and administer those assets. Third, the enforcement of the trust responsibility is carried out for the benefit of the beneficiaries.
Crafting a trust’s legal dynamics can get complicated, so it’s vital to stay up-to-date with the latest developments and legal nuances involved in the formation and administration activity concerning trusts.
This further elaboration on how a trust operates, by Warner Norcross + Judd, provides more in-depth information on the subject.
Understanding trusts, their formation and administration can serve to enrich the practice of corporate lawyers, assisting clients in making informed decisions about their wealth management.