Trust

DEFINITION of 'Trust'

A fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary.

There are two types of trusts:
1. Living Trust (inter-vivos): A trust that is in effect during the trustor's lifetime.
2. Testamentary Trust: A trust that is created through the will of a deceased person.

BREAKING DOWN 'Trust'

For example, a trust can be used if a beneficiary is under age or has a mental disability that impairs the person's ability to maintain his or her own finances. Once the beneficiary is deemed able to manage the funds or assets by the terms dictated under the trust, the beneficiary will receive possession of the trust. The trust is taxed on any funds not distributed to the beneficiary.

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