Special Needs Trust: This trust is meant for a dependent who receives government benefits, such as Social Security disability benefits. Totten Trust: Also known as a payable-on-death account, this trust is created during the lifetime of the trustor, who also acts as the trustee. In the commercial sector, trusts have come to play important roles. Later, if the shares were sold for $12,000, the person who inherited them from a trust would owe tax on a $2,000 gain, while someone who was given the shares would owe tax on a gain of $7,000. The trustees will invest the property in a way that allows them to make regular payments to the deceased’s survivors. If the trustee fails to do this, the courts will require him to account to the beneficiary and may, in extreme cases, remove him as legal owner and substitute another in his stead. Term trust Definition: An organizational structure that gives control over several business firms, usually in the same industry, to a single board of trustees with the purpose of monopolizing a market. Legal trusts are frequently established for the assets or wealth owned by children. The trustees only have control over the assets until the children reach adulthood. A neutral third party, called a trustee, is tasked with managing the assets. Trusts may be established to manage various funds designated for special purposes by businesses and corporations. Blind Trust: This trust provides for the trustees to handle the assets of the trust without the knowledge of the beneficiaries. This article was most recently revised and updated by, https://www.britannica.com/topic/trust-law, Cornell University Law School - Estates and Trusts. Setting a trust up properly typically requires expert advice from a trust attorney or a trust company, which sets up trust funds as part of a wide range of estate- and asset-management services. A Spendthrift Trust: This trust protects the assets a person places in the trust from being claimed by creditors. All rights reserved. Term trust Definition: An organizational structure that gives control over several business firms, usually in the same industry, to a single board of trustees with the purpose of monopolizing a market. An unfunded trust consists only of the trust agreement with no funding. It's generally used for bank accounts (physical property cannot be put into it). In some areas, it is possible for older beneficiaries to become trustees. Permalink: https://glossary.econguru.com/economic-term/trust, © 2007, 2008 Glossary.EconGuru.com. Such designations might include funds deposited against bonds issued by the company or liens on property that are being used as collateral against bonds. This type of trust was outlawed by antitrust laws, especially the Sherman Act, passed in the late 1800s and early 1900s. Our editors will review what you’ve submitted and determine whether to revise the article. Unless such provision was explicitly made as a gift or as the natural expression of a close relationship (e.g., parent-child), the acquired property is held in trust for the person who provided the money even though the second party holds the legal title. The terms of a will may be public in some jurisdictions. Insurance Trust: This irrevocable trust shelters a life insurance policy within a trust, thus removing it from a taxable estate. Although there are many different types of trusts, each fits into one or more of the following categories: A living trust – also called an inter-vivos trust – is a written document in which an individual's assets are provided as a trust for the individual's use and benefit during his lifetime. Money for employee-pension funds or profit-sharing programs is often managed through trust arrangements. Let us know if you have suggestions to improve this article (requires login). A charitable remainder trust, funded during a person's lifetime, disperses income to the designated beneficiaries (like children or a spouse) for a specified period of time, and then donates the remaining assets to the charity. The use of a trust to establish a monopoly is really just an extension of the common, and legal, notion of trust, in which one person controls the assets legally owned by another. Generation-Skipping Trust: This trust allows a person to transfer assets tax free to beneficiaries at least two generations their junior – typically, their grandchildren. A revocable trust can be changed or terminated by the trustor during his lifetime. Trusts are created by settlors (an individual along with his or her lawyer) who decide how to transfer parts or all of their assets to trustees. Though they seem geared primarily toward high net worth individuals and families, since they can be expensive to establish and maintain, those of more middle-class means may also find them useful – in ensuring care for a physically or mentally disabled dependent, for example. Living trusts can be revocable or irrevocable. A trust or corporate trust is a large grouping of business interests with significant market power, which may be embodied as a corporation or as a group of corporations that cooperate with one another in various ways. In economic terms, trust can provide an explanation of a difference between Nash equilibrium and the observed equilibrium. Corrections? A funded trust has assets put into it by the trustor during his lifetime. The same conditions of a will may apply through a trust, and individuals who don't want their wills publicly posted opt for trusts instead. The trustee may be a professional or may be a member of the family with experience in managing money, or a group of trustees may be chosen. Read More on This Topic An irrevocable trust, as the name implies, is one the trustor cannot change once it's established, or one that becomes irrevocable upon his death. Encyclopaedia Britannica's editors oversee subject areas in which they have extensive knowledge, whether from years of experience gained by working on that content or via study for an advanced degree.... Anglo-American law recognizes another possible division of ownership, that between the power to manage property and the privilege of receiving... Get exclusive access to content from our 1768 First Edition with your subscription. A trust is one way to provide for a beneficiary who is underage or has a mental disability that may impair his ability to manage finances. A simple example would be the situation in which one member of a family advances money to another and asks the second member to hold the money or to invest it for him. This type of trust was outlawed by antitrust laws, especially the Sherman Act, passed in the late 1800s and early 1900s. A testamentary trust, also called a will trust, specifies how the assets of an individual are designated after the individual's death. For example, the charitable trust of Anglo-American law has a close analogy in the civil-law “foundation” (French fondation, German Stiftung). A brief treatment of trusts follows. There is, however, a greater preference in civil-law countries than there is in Anglo-American ones for the administration of property by the person who owns and benefits from it. Funds placed in a credit shelter trust are forever free of estate taxes – even if they grow. Qualified Personal Residence Trust: This trust removes a person's home (or vacation home) from their estate. These assets are transferred to his beneficiaries at the time of the individual's death. A trust helps avoid taxes and probate. As between the trustee and the beneficiary, the beneficiary receives all the benefits of the property. (Note that the step-up in basis applies to inherited assets in general, not just those that involve a trust.). By signing up for this email, you are agreeing to news, offers, and information from Encyclopaedia Britannica. While trusts are normally created by an express instrument of trust, courts will sometimes imply a trust between people who have not gone through the formal steps. The legal owner of the property (the “trustee”) has the right to possession, the privilege of use, and the power to convey those rights and privileges. Public express trusts are created to benefit larger numbers of people, or, at least, are created with wider benefits in mind.