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Simple English definitions for legal terms
trust
Read a random definition: mutual-fund wrap account
A quick definition of trust:
Trust: A trust is when someone gives their things to another person to take care of for someone else. The person who gives their things is called the "grantor" or "settlor," the person who takes care of the things is called the "trustee," and the person who gets to use the things is called the "beneficiary." The trustee has to do what's best for the beneficiary and can't use the things for themselves. The trust has to follow certain rules and be written down and signed. If the trustee can't do their job, someone else will take over. The things in the trust can be given to the beneficiary even after the person who gave them away has died.
A more thorough explanation:
A trust is a legal arrangement where a person, known as the grantor or settlor, transfers their property rights to a third party, called a trustee. The trustee holds and manages the assets for the benefit of another person, known as the beneficiary. The trust is a fiduciary relationship, meaning that the trustee has a legal obligation to act in the best interest of the beneficiary.
- A settlor with the intent and capacity to create the trust
- A definitive beneficiary who is reasonably ascertained
- A trustee to hold and administer the assets
- Assets to be held in the trust
- Legal formalities, such as being in writing, signed, and notarized
For example, a parent may create a trust for their child's education. The parent transfers money into the trust, appoints a trustee to manage the funds, and designates the child as the beneficiary. The trustee has a legal obligation to use the funds for the child's education expenses.
Another example is a trust created for charitable purposes. A person may transfer assets into a trust and appoint a trustee to manage the funds for the benefit of a specific charity. The trustee has a legal obligation to use the funds for the charitable purposes designated by the grantor.
In both examples, the trustee has a fiduciary duty to act in the best interest of the beneficiary and manage the assets prudently.