Previously we have learned and discussed Will. But unlike a Will, a Trust helps businesses to continue without any difficulty even in case a family member passes away. Before we understand the concept of trust, let us first get familiar with a few terminologies.
Terms and Terminologies:
a) Author of the trust: He is a person who creates a trust. The property or other assets mentioned in the trust deed belongs to the author of the trust. Author of the trust is also known as Settlor or Grantor.
b) Trustee: He is a person on whom the author of the trust places the responsibility of managing the trust and executing the trust deed.
c) Beneficiary of the trust: it refers to an individual who benefits from the transfer of the property or assets under the trust.
d) The subject matter of the trust is the trust property or trust money.
What is a Trust?
- A trust is simply a legal arrangement / vehicle in which the Settlor transfers ownership of property and other assets to the trust, the named trustee then manages and controls the assets for the benefit of the named beneficiary.
Why is a Trust created?
a) Private trusts are created to specifically earmark funds intended for minor children, elderly parents, disabled dependents and other beneficiaries.
b) The main advantage of creation of a trust is that the property passes on directly to the beneficiary absolutely hassle free.
c) Another reason for creating trusts can be to deny beneficiaries direct access to funds which they may squander away, while ensuring adequate income flows from it for their maintenance.
d) A trust can be a valuable succession planning tool in many situations, but many do not know exactly how creating a trust may benefit their estate.
For the more affluent, who own businesses governed by families, a trust is a vehicle that provides effective and hassle free wealth management, asset protection and tax efficiency.