Understanding Trusts in the USA

Understanding Trusts in the USA

February 28, 2023

A trust in the USA is a legal arrangement where a person, known as the trustor or grantor, transfers assets to a trustee who manages those assets for the benefit of one or more beneficiaries. The trustee has a fiduciary duty to act in the best interests of the beneficiaries and to follow the terms of the trust document. Trusts can be created during the trustor's lifetime or through their will, and they can serve a variety of purposes, such as avoiding probate, providing for the care of minor or disabled beneficiaries, or minimizing taxes. There are many different types of trusts, each with their own specific rules and requirements, and they are subject to state and federal laws.

There are several types of trusts, each with specific rules and requirements in the USA. Here are some of the most common types:

  1. Revocable Living Trust: A trust that can be changed or terminated during the lifetime of the creator. The creator also serves as the trustee, managing the trust assets until their death or incapacity, at which point a successor trustee takes over.
  2. Irrevocable Trust: A trust that cannot be changed or terminated once it is created. The creator typically transfers ownership of assets to the trust, removing them from their estate for tax and asset protection purposes.
  3. Testamentary Trust: A trust created through a will that takes effect after the death of the creator. It can be revocable or irrevocable and is typically used to manage assets for minors, disabled individuals, or individuals who may not be capable of managing their own finances.
  4. Special Needs Trust: A trust created to provide for the needs of a disabled individual without disqualifying them from government benefits. The trust assets are used to supplement the individual's needs, not replace government benefits.
  5. Charitable Trust: A trust created to benefit a specific charitable cause or organization. The trust can be revocable or irrevocable and provides tax benefits to the creator.

The specific rules and requirements for each type of trust can vary by state, but generally, a trust must have a designated trustee, a designated beneficiary or beneficiaries, and a valid legal purpose. The trust document must also meet certain legal requirements, including being in writing, signed by the creator, and properly executed according to state law. It's important to consult with a qualified attorney or financial advisor when creating a trust to ensure that it meets all legal requirements and serves your specific needs.

Caleo Capital USA (Caleo Capital NA LLC) are an integrated wealth advisory and asset management firm that serves high-net-worth South African families who have relocated or are planning relocation to the United States. Emigration and relocation is complex both administratively and emotionally, with so many aspects to consider. Financial planning for the average high-net-worth individual is no simple task, but tax, retirement, trusts and estate planning is even more complicated when your financial life spans international borders.

This material is for discussion purposes only, and Caleo is not soliciting any action based upon it. This material does not constitute, and is not to be considered, an offer to sell or a solicitation of an offer to buy any product, security, advisory, risk management, or other service mentioned herein. It has no regard to the specific investment objectives, financial situations or particular needs of any specific recipient. This material is not to be construed as investment advice nor is it intended, to constitute legal advice.