Glossary of Trusts

Some juristictions require that a Will be witnessed by three witnesses in order to be valid.

Some jurisdictions require that a Will be notarized by a Notary Public in order to be valid.

Some jurisdictions require that a Will be notarized by a licenced law practitioner (lawyer).

Check with your local authorities.


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A fiduciary relationship in which one party holds legal title to another's property for the benefit of a party who holds equitable title to the property.

Alimony Trust
A trust created often in accordance with a separation agreement in which property is transferred to the trust as a source of support for a divorced spouse with a remainder to someone else.

Business Trust
A trust that is created for the purpose of making profit and that is usually characterized by some kind of commercial activity, transferable certificates of interest, existence continuing after the death of beneficiaries, limited liability, legal title in the hands of trustees, and officers having duties of management (called also common-law trust, Massachusetts trust) Note: A trust that qualifies as a business trust is eligible for bankruptcy protection under chapter 13 of the Bankruptcy Code.

Bypass Trust
A trust in which a spouse leaves his or her estate upon death to a trust naming the surviving spouse as beneficiary usually with remainders to children or other descendants (called also bypass shelter trust, credit shelter trust, shelter trust) Note: The purpose of a bypass trust is to reduce the surviving spouse's taxable estate. Such trusts do not qualify for the marital deduction.

Charitable Remainder Annuity Trust
A charitable remainder trust in which the named beneficiaries receive a fixed payment of not less than five percent of the fair market value of the original principal over the course of a specified period after which the remaining principal passes to charity.

Charitable Remainder Trust
a trust in which individuals are named as beneficiaries to receive income for a period of time (as the lifetimes of the beneficiaries) after which the principal passes to charity Note: Charitable remainder trusts qualify for tax exemptions under section 664 of the Internal Revenue Code.

Charitable Remainder Unitrust
a charitable remainder trust in which the named beneficiaries receive payments of a fixed percentage and not less than five percent of the value of the trust assets as determined annually for a specified period after which the remainder passes to charity.

Charitable Trust
A trust created for the purpose of performing charity or providing social benefits Note: Unlike most trusts, a charitable trust does not require definite beneficiaries and may exist in perpetuity.

Clifford Trust
a grantor trust lasting at least ten years with income payable to a beneficiary and principal reverting to the settlor upon termination. Note: Prior to the Tax Reform Act of 1986, a Clifford trust could be used as a tax shelter that diverted income from the settlor, who was in a higher tax bracket, to a beneficiary, often a child, who was in a lower tax bracket. Under the current rules, the settlor is treated as the owner of any portion of a trust in which he or she has a reversionary interest, and therefore taxes are calculated at the settlor's rate.

Credit Shelter Trust
see "bypass trust".

Discretionary Trust
a trust that gives the trustee authority to exercise his or her discretion in distributing principal or income to the beneficiary.

Generation-Skipping Trust
a trust in which the principal will eventually go to a skip person usually following payment of income for life to a non-skip person: a trust created by a generation-skipping transfer of property in trust.

Grantor Trust
a trust that is taxed at the settlor's tax rate because the settlor has the power to control the beneficial enjoyment of the trust, retains a reversionary interest in the trust, has administrative powers over the trust, has the power to revoke the trust, or benefits from the income of the trust (see also clifford trust).

Insurance Trust
a trust in which the principal consists of an insurance policy or its proceeds.

Inter Vivos Trust
a trust that becomes effective during the lifetime of the settlor (called also living trust) (compare testamentary trust).

Irrevocable Trust
a trust that cannot be revoked by the settlor after its creation except upon the consent of all the beneficiaries.

Land Trust
a trust created to effectuate a real estate ownership arrangement in which the trustee holds legal and equitable title to the property subject to the provisions of a trust agreement setting out the rights of the beneficiaries whose interests in the trust are declared to be personal property (called also Illinois land trust, naked land trust).

Marital Trust
a testamentary trust naming a surviving spouse as the beneficiary.

QTIP trust
a trust to which qualified terminable interest property is transferred for purposes of taking the marital deduction.

Qualified Charitable Remainder Trust
a trust that is either a charitable remainder annuity trust or a charitable remainder unitrust.

Real Estate Investment Trust
a business trust similar to a closed-end investment company except that it invests in real estate either as an owner having equity in the property or as a lender holding mortgages on the property.

Spendthrift Trust
a trust that is created for the benefit of a spendthrift who is paid income therefrom and that cannot be reached by creditors to satisfy the spendthrift's debts.

Voting Trust
a trust created by the transfer of legal title to shares of stock to a trustee or trustees who exercise the corporate voting rights conferred by ownership of the shares as agreed in the trust instrument. Note: The shareholders transferring legal title to their shares retain the equitable title and continue to receive dividends and other distributions. They also receive certificates as evidence of their interest in the trust, which provides the holder with the rights of a shareholder except for voting rights.

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