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InfoSight Highlight: Trust Accounts
Friday, December 2, 2016 6:35 AM

A trust is a tool used to transfer, control, and distribute property. A formal trust is one created under a written agreement drafted by an attorney. The trust establishes a relationship among three parties: the person who creates the trust (called the “Grantor”); the person who manages the assets of the trust (called the “Trustee”); and the person who benefits from the trust (called the “Beneficiary”). There may be one or more grantors, trustees, or beneficiaries of a trust.

In some trusts, the grantor, the trustee and the beneficiary are all the same person. The trustee holds legal title to the property of the trust and is required to manage the trust property for the benefit of the beneficiaries in accordance with the terms set out by the grantor in the trust document.

An informal trust is created when a person sets up a deposit account in his or her own name, followed by the words “trustee for” a named beneficiary. The term “Totten Trust” or “Payable on Death” is used to describe this type of trust. The person who sets up the account is deemed to be the owner of the funds and is entitled to deposit and withdraw funds from the account as he or she deems fit. When the depositor dies, any funds in the account automatically become the property of the beneficiary.

Trusts may be revocable or irrevocable. A revocable trust is one that may be altered, changed, modified, or revoked after it's established. An irrevocable trust, as the name implies, is not revocable once it has been established. Once a grantor transfers property to an irrevocable trust, the grantor can no longer take the property back from the trust.

Trusts that are created during the grantor’s lifetime are called “living trusts.” Trusts that are included in a will and therefore do not take effect until after the death of the grantor are called “testamentary trusts.”

Source:  InfoSight Compliance.

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