Understanding The Purpose of Trusts

The general function of a legal trust is to establish a legal relationship where another party is given the task of managing the property of the grantor of the trust. A legal trust, based on its type, removes the property from the ownership of the initiator of the trust and gives ownership to a trustee. The property involved in legal trusts may be any equitable land, monies or assets that can be made transferable.

Legal trusts may be established for multiple purposes ranging from planning an estate to receiving affordable health benefits. Examples of the purposes include privacy, estate planning, charitable donations, co-ownership of a property, protecting assets, applying for health care and receiving tax deductions.
Privacy can be ensured by a trust by keeping the assets and income of the grantor separate from the Last Will and Testament. This keeps personal information out of the public records of Probate proceedings as will are able to be made known to those outside of the close family of the deceased.
Legal trusts established to plan estates do so by placing another party in charge of the noted estate or property. This party may manage the property temporarily or permanently based on the terms of the trust. Many people who are not able to financially maintain a property allow others to do so through a trust. This then adds value to that property and puts it in a better state to be either returned to the grantor or to other beneficiaries.
Charitable donations can be made through a trust by making a charitable organization a beneficiary of the estate. These legal trusts also make it possible for non-charitable beneficiaries to receive a percentage of the estate.
Co-ownership of a property through two or more parties is established through a trust. This may apply to owning a home or business and each party involved is listed as a legal trustee and beneficiary of the property. This establishes the terms of how the property is to be operated and which trustees will perform what actions in regard to the management of the property.
Legal trusts may created to hide or protect the assets of a grantor from legal action. Divorce settlements, creditors and lawsuits are unable to touch the properties in the trust as the grantor rescinds the right to the property and the trust.
Some senior citizens draft a trust for the purpose of receiving federal health care or care from nursing homes. The legal trust removes net income from the ownership of the grantor in order for that grantor to qualify to certain forms of health coverage and to receive care from nursing homes at a lower premium
Grantors and beneficiaries may receive certain tax breaks based on the type of legal trust drafted and the value of the trust. Another factor that affects tax deductions or tax rates is the location of the trust. If the trust is, for example, created outside the United States it is rarely subject to United States federal taxes.

NEXT: What Is Retirement Income