A trust is the legal relationship that is created when a person transfers "stuff" to a trustee with the understanding that the trustee will manage it for the benefit of one or more beneficiaries. "Stuff" includes both real property—such as land and buildings—and personal property—such as bank accounts, stocks and bonds, and personal effects. The person who transfers the stuff to the trustee is called a trustmaker. This person is also known as a settlor, grantor, or trustor. Usually, the trustmaker is also the trustee (or perhaps co-trustee) and the initial beneficiary of the trust.
For a variety of reasons, a married couple will usually want to create two revocable living trusts instead of just one. It is not uncommon for husbands and wives to be the co-trustees of both of their trusts during their joint lifetimes, and then, after the death of one spouse, to have the survivor serve either as sole trustee or co-trustee with one or more other individuals or a trust company.
A trust is controlled by a document called the trust agreement (sometimes called the trust instrument). The trust agreement sets out the rules about how the trust will be run. If the trust agreement says that the trustmaker can revoke it or change it, the trust is what we call a revocable trust. If the trust agreement does not allow the trustmaker to change or revoke it, we have what is called an irrevocable trust.
Irrevocable trusts can be powerful estate planning tools. They allow trustmakers to make gifts but keep the recipients from having complete control over the gifted assets. Irrevocable trusts play an important part in many estate plans. They can help provide tax savings, creditor protection, and expert management of assets.
A living trust is one that you create and fund (transfer stuff into) during your lifetime. It can be revocable or irrevocable, depending on how much control you want to maintain over the trust and its assets. A revocable trust gives you complete control, whereas an irrevocable trust gives you limited or no control. A testamentary trust is one that goes into effect and is funded following your death because it is governed by your last will and testament. Testamentary trusts do not avoid probate, and they are rarely used in contemporary estate plans.