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A trust is an entity which owns assets for the benefit of a third person, called the beneficiary. A living trust is an effective way to provide lifetime and after-death property management and estate planning. When you set up a living trust, you are the grantor/settlor/trustor; anyone you name within the trust who will benefit from the assets in the trust is a beneficiary.

In addition to being the grantor, you can also serve as your own trustee (original trustee). As the original trustee, you can transfer legal ownership of your property to the trust. This can save your estate from estate taxes when you die. However, you are still liable for income tax obligations. Another advantage of a trust is that it doesn’t have to go through probate like a will, but rather passes according to provisions of the trust as set up by the creator of the trust. Therefore, details of a trust don’t become a part of public records. This allows you to maintain more privacy over your financial affairs.

There are many types of trusts. A trust may be revocable or irrevocable. An irrevocable trust is created during the maker’s lifetime and does not allow the maker to change it. A revocable trust is a trust that can be amended and revoked, usually by the person who established the trust. It may also be called a “living trust” or “inter vivos trust”. A revocable living trust does not constitute a gift, so there are no gift tax consequences in setting it up. This trust may become irrevocable and unchangeable when the only person who can amend or revoke the trust dies or becomes incompetent.

Other types of trusts, among others, include “Medicaid income trusts”, used to protect a person’s assets while qualifying for institutional care services or for home and community based services assistance, and “charitable remainder unitrusts”, which provide for eventual guaranteed distribution of the corpus (assets) to charity, providing a substantial tax benefit. There are also “constructive” and “resulting” trusts declared by a court for equitable reasons over property held by someone for its owner. A “testamentary trust” can be created by a will to manage assets given to beneficiaries.