A trust agreement is often called a declaration of trust. It is a legal document that describes the terms and conditions of how a person’s valuable assets will be repositioned, protected, held, or managed in the case of death or incapacitation. A trust is classified in two ways – living or testamentary. A living trust is created during the grantor's lifetime. A testamentary trust doesn’t become active until death.
The concept of a trust originated as a way for people to honor contractual agreements when transferring property or valuables from one person to another. The property or valuable can also be transferred to a corporate body or a charity. The person who holds the property or wealth is called the grantor, while the individual, corporation, or charity to which the property will be transferred is called the trustee or the beneficiary.
There are certain provisions and information included in trust agreements. This information includes a statement that details the purpose of the trust, the names of the individuals or entities that will benefit from the trust, and when the beneficiaries of the trust will be entitled to receive the wealth and property available in the trust.
There are several reasons why a person may be motivated to create a trust agreement. A trust agreement can provide asset protection and wealth preservation. The agreement can also eliminate estate taxes, and in some cases a person may even gain tax benefits because of the agreement. Trust agreements can also reduce potential frivolous lawsuits because the agreement clarifies where the wealth should be distributed.
Another advantage to a trust agreement is the privacy that the contract provides. Typically people create wills to distribute their assets after death. Unfortunately, a will becomes a public record once it is filed with the probate court, which means that anyone can access it. A trust agreement can keep a person’s affairs out of the public record. There is a misconception that these agreements only protect an individual’s assets at death. The agreement is also important in the case that a person is injured, incapacitated, or can no longer manage their assets on their own.
Trust agreements are complicated contracts and are usually created with the help of an attorney, who can create the contract in the way that minimizes any losses and provides tax advantages and legal shelter. Attorneys that specialize in probate and estate law can help a person craft a trust agreement that specifically caters to their financial needs.