A trust is a legal relationship where the owner, or trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary. A trust is traditionally used for minimizing estate taxes and offers other benefits as a part of an estate plan.
While most typically associated with estate planning, trusts are created more broadly for the purpose of achieving certain goals in the transfer of assets. Many common goals in creating a trust include the reduction of estate taxes, avoidance of probate, and to ensure asset protection. Depending on the specific goals of the trust, a number of structures exist and specific details must be taken into consideration.
Because of the many reasons trusts are created, a wide variety of structures exist in order to achieve different goals.
All trusts are taxed differently depending on a few details about their structure. A trust is a separate legal and taxable entity, and whether or not the trust pays income tax depends on if it is a simple trust, complex trust, or grantor trust.