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What is a trust?

Author: Beau Follett

What exactly is a trust? A trust is an contract or agreement by which property belonging to one entity, typically a person, is entrusted to the attention of another entity in order to use it for the advantage of a third party. While this agreement can take many structures, the most ordinarily known from of trust involves a wealthy individual who deposits a large sum of money and/or investment instruments with a attorney. The latter person is charged with distributing funds and dividends on a regular basis to a third party. Often, the third party is a younger relative or a friend of the wealthy person.

What Is a Trust? - The Elements

There are three necessary parties involved in any trust. In some cases, there may only be two. However, the most universal form of a trust has three components. They are the settlor, the trustee and the beneficiary.

• The settlor is usually someone with more than enough money to support him or herself. This individual may be concerned about the welfare of another person and wish to ensure that this person will always have source of income. The settlor makes plans with someone else, usually a lawyer or a firm of lawyers, to make financial preparations for that individual.

• The trustee is the person or entity charged with releasing funds and caring for their source. Once the settlor has signed over the care of certain funds to a trustee, this individual or individual is legally responsible for making sure that the assets either lasts indefinitely or for a finite amount of time. The trustee is also in charge for distributing the funds on appointed occasions.

• The beneficiary is the individual or entity who receives the income. In most cases, the beneficiary is not particularly accountable for the use of the funds once they are distributed. However, the beneficiary may have to meet specific conditions in order to continue acquiring these income. Penalties for failing to meet these stipulations can range from a simple delay in funding to actual termination. The trust may have a secondary beneficiary who would then receive the assets.

What Is a Trust? Why Is It Created?

Trusts are just one way to give assets to another person. They differ from simple gifts in two essential ways. These variances have to do with timing and responsibility.

Trusts are large sums of money and other financial assets which periodically issue payouts to beneficiaries. Generally these dividends are fixed sums, regardless of the increase or decrease of the principal. Others may provide for dividends to respond to the over-all value of the principal.

Trusts also vary from simple gifts because they do not entrust obligation for the finances to the beneficiary, commonly because the settlor does not consider the beneficiary ready of managing the funds or simply does not want to burden him or her with the job of managing the holdings.

What Is a Trust?

A trust is an effective way to guarantee that an individual receives your help. Trusts can go on long after the settlor has died. Occasionally they even outlive their beneficiaries. In those cases, if there is no written record stating what is to be done with the principal, a judge will probably decide the fate of the trust.
Beau Follett is Chief Marketing Officer with www.unitedplangroup.com
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