A trust is an artificial legal entity that is created to hold assets for someone or some purpose. A trust can be established for any lawful purpose. To create a trust requires an agreement that sets out the terms of the trust, names the beneficiary or beneficiaries and names the trustee. Creating a trust also requires that assets be placed in the name of the trust. Any kinds of assets, including real estate, can be placed in trusts. Unlike business entities like companies or LLCs, trusts are not required to be registered with the Secretary of State.
The person who creates the trust is called the settlor, grantor or sometimes the trustor. The person who has the power and responsibility to manage the assets in the trust is called the Trustee. The persons for whose benefit the trust is created are called the beneficiaries. If a person is not currently entitled to anything but might be entitled to something in the future, that person is called a contingent beneficiary or sometimes a residuary beneficiary.
In Minnesota, trusts have to terminate within the lifetime of people who are alive at the time the trust is created, plus 21 years (to deal with the minority of a future beneficiary). This is called the Rule Against Perpetuities. If the terms of a trust might result in a trust that violates the Rule Against Perpetuities, the result is that the trust is invalid.
There are many different kinds of trusts. There are revocable trusts where someone, usually the settlor, retains the right to change the terms of the trust, including the right to terminate the trust. There are irrevocable trusts in which no one has the right to change the terms or terminate the trust. There are testamentary trusts that are contained in a will. Testamentary trusts do not come into existence until assets are being distributed after the death of the settlor. A trust may contain provisions for future trusts to be established. A trust might start out as revocable but then on the death of the settlor turn into an irrevocable trust. There are trusts that are used to avoid estate and gift taxes. These trusts are usually irrevocable. There are trusts that are used to make sure disabled beneficiaries are not disqualified for government benefits. These trusts are called Supplemental Needs or Special Needs Trusts.
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