The concept of the third party trust is simply a means for one party (the grantor or settlor) to transfer the legal title (management and control) of an asset to the trustee, while transferring the beneficial interest (the economic benefits of ownership) in the asset to the beneficiaries. Although the trustee is the legal owner of the asset, he is obligated to exercise his control of the asset in the best interest of the beneficiaries of the trust. Although it is possible to have an oral trust agreement, the terms of the trust arrangement usually and ideally are spelled out in a written trust agreement.

There are four kinds of basic trusts:

A living or inter vivos trust: This is a trust established during the lifetime of the grantor.

A testamentary trust: This trust is established under the terms of the grantor’s will.

A revocable trust: A trust that can be terminated or amended by the grantor at any time.

An irrevocable trust: A trust that cannot be terminated or amended by the grantor.

Although revocable living trusts can have considerable utility as estate planning and probate avoidance devices, they provide no meaningful asset protection against the grantor’s creditors. If the grantor can reach the assets of the trust at any time, so can the grantor’s creditors, since the creditors can simply ask the court to order the grantor to revoke the trust. Not withstanding this obvious and fatal defect, amazingly some promoters sell living trusts as asset protection tools. Therefore, all future atricles will focus on irrevocable inter vivos trusts and testamentary trusts.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.