Legal Definitions - trust agreement

A trust agreement is a formal legal document that establishes a trust. It serves as a written contract between the person creating the trust (known as the "grantor" or "settlor") and the person or entity responsible for managing the trust's assets (the "trustee"). This comprehensive agreement specifies the assets to be held within the trust, identifies the beneficiaries who will receive benefits from these assets, and clearly outlines the rules, conditions, and instructions for how the trustee must manage, invest, and distribute the trust's assets according to the grantor's precise wishes.

• Example 1: Funding a Child's Future Education

  A single parent wants to set aside money specifically for their young child's college education, but they don't want the child to have direct access to a large sum of money at a young age. The parent decides to create a trust.

  The parent would execute a trust agreement. This document would name the parent as the grantor, appoint a trusted family friend or a financial institution as the trustee, and designate the child as the beneficiary. The agreement would specify that the funds placed into the trust are exclusively for educational expenses (tuition, books, room and board), with clear instructions on when and how the trustee can disburse these funds (e.g., upon proof of college enrollment, directly to the educational institution). This agreement legally binds the trustee to manage the funds solely for the child's education as outlined.

• Example 2: Estate Planning for Asset Distribution

  A married couple owns a home, several investment accounts, and other valuable assets. They want to ensure that upon their passing, these assets are distributed smoothly and privately to their adult children without the need for a lengthy and public court process called probate.

  The couple would establish a revocable living trust through a trust agreement. This agreement would transfer the legal ownership of their home and investments into the trust. It would name themselves as both the grantors and the initial trustees, and their children as the beneficiaries. The agreement would detail how assets should be managed during their lifetimes and, crucially, how they should be distributed to their children upon their deaths, thereby bypassing probate court because the assets are already legally owned by the trust.

• Example 3: Establishing a Charitable Foundation

  A successful entrepreneur wishes to dedicate a significant portion of their wealth to support environmental conservation efforts long after they are gone, ensuring the funds are managed professionally and distributed strategically over many decades.

  This individual would create a charitable trust using a trust agreement. The agreement would name the entrepreneur as the grantor, appoint a professional trustee (such as a bank's trust department), and designate specific environmental organizations or a broad category of conservation initiatives as the beneficiaries. The document would detail the initial assets, the investment strategy for the trust's principal, and the schedule and conditions for distributing income or principal to the chosen charities over time, ensuring the grantor's philanthropic goals are met consistently and effectively for generations.