Trust company
A trust company is a financial institution that specializes in managing trusts, which are legal arrangements where one party (the trustor) grants another party (the trustee) the authority to manage assets for the benefit of a third party (the beneficiary). Trust companies play a critical role in administering various types of trusts, including living trusts and testamentary trusts, which are established either during the trustor's lifetime or through their will, respectively. They offer several advantages, such as potentially reducing estate taxes, allowing for quicker distribution of assets without the probate process, and providing a higher level of protection against contestation than wills.
Trust companies are often linked to larger banks or financial institutions and can help establish specialized trusts, including those for individuals with special needs or charitable trusts intended to benefit society. Utilizing a trust company can simplify the management of complex family dynamics related to inheritance, ensuring that the trustor's specific wishes are respected and reducing the burden of administrative tasks like record keeping and tax preparation. Additionally, trusts generally provide a level of privacy not afforded by wills, as their terms typically remain confidential.
Trust company
A trust company is a company that manages the financial assets put into a trust by a trustor, sometimes called a settlor or grantor, for the benefit of a third party, known as the beneficiary. A trust is a legal relationship in which the trustor grants the trustee—in this case, the trust company—the right to hold and manage financial assets for the benefit of the beneficiary. Trust companies are often part of larger commercial banks or have a relationship with a larger financial institution. In some trusts, an individual, such as an attorney, may act as the trustee rather than a trust company. Some people may choose a trust company rather than an individual to act as trustee because they think that a company will be more likely to follow and enforce the terms of the trust.
Types of Trusts
Trust companies can manage different types of trusts. The two main types of trusts are a living trust, called inter-vivos, or a testamentary trust, which is established through a deceased person's will. A living trust may be either revocable, meaning that the trustor still has control of the assets in the trust and is free to make changes whenever he or she sees fit, or irrevocable, meaning that the trustor no longer controls the assets in the trust and changes cannot be made without permission from the trust's beneficiary. A testamentary trust does not replace a will. In a testamentary trust, the trustor puts only specific assets into the trust. The trustor's will establishes the terms that dictate what will happen with the rest of his or her estate.
Trust companies can also help individuals establish specific types of trusts, such as trusts that provide for the ongoing care of a child with special needs. Certain types of trusts can help decrease the burden of estate taxes, which are taxes on property transferred to a beneficiary after a loved one's death. For example, a credit shelter, or familytrust allows a trustor to place assets valued up to but not exceeding the estate tax into a trust and then transfer the remaining estate to his or her spouse without incurring any taxes. The assets held in a credit shelter trust cannot be subject to estate taxes, even if the assets appreciate.
Sometimes trust companies will manage trusts for people who have complicated family dynamics. For instance, a trustor who has been married several times might want certain assets held in trust for specific beneficiaries, such as the trustor's children from his or her first marriage. This type of trust is called a qualified terminable interest property trust.
A person may also turn to a trust company to help manage a charitable trust, in which the assets are used to benefit society in some way. Assets held in a charitable trust may include land, money, or artifacts of historical or artistic value. However, the requirements for establishing a charitable trust are complex. The trustor must show how the charitable trust will improve society and must clearly define the segment of the population that will benefit from the trust. For example, a trustor might put a building and some money into a trust for the express purpose of establishing a children's library for the local community. Because charitable trusts are scrutinized more closely under the law, having an experienced trust company act as the trustee can help ensure the trust meets all the necessary requirements.
Benefits of Trusts and Trust Companies
Establishing a trust through a trust company has several benefits. As previously mentioned, establishing a trust can reduce estate taxes. In some cases, these taxes can be avoided altogether. Another benefit is that a trust, unlike a will, does not have to go through a probate process. During probate, a judge determines whether a will is valid. Because trusts are not subject to this process, the beneficiaries can receive the assets from the trust quickly and avoid paying any probate fees.
A trust company can explain how a trust can protect the interests of the trustor and ensure that his or her wishes are followed. First, a trust provides more protection from challenges than a will does. If a person's descendants are unhappy with the terms of a will, they can go to court to contest it. It is much more difficult to contest a trust. Second, a trust company can help a trustor set up a trust that addresses his or her specific needs. A trust can allow the trustor to specify exactly which assets will go to which beneficiary. This can prevent arguments among family members and loved ones regarding inheritance following the trustor's death. Finally, working with a trust company can relieve the trustor from certain responsibilities regarding the assets in the trust, such as record keeping and tax preparation. These tasks now fall to the trustee, or trust company.
Another advantage of a trust is that it is private. After a person dies, his or her will must go through the probate process, which makes the terms of the will public record. Because a trust is not subject to probate, the terms of the trust and its beneficiaries, in most cases, can remain private.
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