A trust can be thought of as an artificial person or entity that holds property for the benefit of a real person. It is similar in some ways to a corporation, but in other ways it is very different.
The creation of a trust involves three persons. The Settler or Creator creates the trust. The settlors can be husband and wife.
The trustee is legally responsible for managing the trust property. This can be a professional trustee like a bank. Also the creators can be the trustees. For example, the husband and wife who create a trust can also be the trustees. If one of them dies then the survivor usually remains as sole trustee. Sometimes an additional trustee is appointed. When the surviving spouse dies, then a successor trustee is appointed.
The third party to a trust is called the beneficiary or beneficiaries. These are the persons who receive the benefit of the trust income and three beneficiaries may even have the right to withdraw the principal assets of the trust depending on the creators? wishes. Again the creators can be the beneficiaries. For example, the same husband and wife can be the beneficiaries of their own trust.
The actual trust agreement is a long document which lists the trust rules. Many of the rules are custom tailored to the wishes of the creators. For example, the usual pattern is for the creators, husband and wife, to be the trustees and beneficiaries during their lifetimes. They then control the property in the trust. When one spouse dies, then the surviving spouse remains as trustee and still controls the trust and has the right to the income of the trust. When the surviving spouse dies, then a new trustee is appointed to manage the trust property. The new trustee usually manages the property for the deceased husband and wife's minor children and provides income and support for the minor children from the trust property. After the children reach the age of majority or an age designated in the trust, the trustee then distributes the remaining property to the adult children.
Of course, there are a thousand variations that can be done and that is one of the advantages of a trust. The creators of the trust can, within limits, create unique provisions for the handling of the trust property.
Why do you need a trust? There are two major reasons for having a trust. The first is that major death tax benefits result from an estate planning trust. Second, most probate expenses can be avoided by the use of a trust.