In common law legal systems, a trust is a relationship where a property is held by one party for the benefit of another. Property of any sort may be held in a trust. Trusts can provide considerable benefits in estate planning, asset protection, and taxes. Living trusts may be created during a person’s life or after death in a Will.
A trust is created by someone transferring some or all of his or her property to a trustee. The trustee will then hold that property for the trust’s beneficiaries. There are three elements that are required to form a trust: intention to form, property to include and beneficiaries of the trust.
Someone placing property into trust will be giving some of their legal rights to the trustee as the legal and equitable ownership are now split. This may be done for tax reasons or to control the property and its benefits when the property owner is absent, incapacitated, or dead. Trusts are frequently created in wills, defining how money and property will be handled for children or other beneficiaries.
The trustee is given legal title to the trust property, but is obligated to act for the good of the beneficiaries. The trustee may be compensated and have expenses reimbursed, but otherwise must turn over all profits from the trust properties. Trustees who violate this could be guilty of self-dealing and have their actions reversed by a court and have other sanctions imposed.
The trustee may be an individual, company, or public body and there may be a single or multiple co-trustees. The trust is governed by the terms under which it was created and usually requires a contractual trust agreement or deed.