Trust Agreement: Definition & Overview

A trust agreement is a legal document that allows the trustor to transfer the ownership of assets to the trustee to be held for the trustor's beneficiaries. While the trustee becomes the legal owner of the assets, the trustor retains equitable ownership of the assets. Trust agreements are created for many reasons:

• Allow your trustees to avoid probate as long as the assets are transferred to the trust
• Wealth management
• Tax advantages
• Keep the document in public record for when the trustor passes

Understanding Trusts

A trust is a fiduciary relationship in which the trustor gives the trustee the right to hold title to assets or property for the benefit of a third party called the beneficiary. Trusts provide legal protection for the trustor’s assets or properties to ensure that they are distributed according to the trustor’s wishes.

Trusts also reduce paperwork and might avoid or reduce inheritance or estate tax issues.

There are three main types of trusts:

1. Living or testamentary: A living trust is a written document in which an individual's assets are provided as a trust for the individual's use and benefit during his lifetime. A testamentary trust defines how the assets will be used after the individual’s death.
2. Revocable or irrevocable: A revocable trust can be changed or terminated by the trustor while the trustor is alive. An irrevocable trust cannot be changed or terminated once established. Living trusts can be revocable or irrevocable, depending on where you live. However, testamentary trusts can only be irrevocable. Some might prefer an irrevocable trust because generally it cannot be altered.
3. Funded or unfunded: A funded trust has assets put in by the trustor while the trustor is alive. An unfunded trust, as the name suggests, has no funding. Unfunded trusts can be funded when the trustor dies or they can also be left unfunded, but you may have to go through probate to get the trust funded. It is important to note that an unfunded trust does not provide the intended benefits as a trust does until it is funded with assets during the trustor’s lifetime.

Here is more on types of trusts.

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Purpose of a Trust Agreement

Trust agreements are often used to determine how a person’s money should be managed and distributed while that person is alive or after their death. Trusts are used to protect assets from creditors and can dictate the terms of an inheritance for beneficiaries. Trusts can provide for a beneficiary who is underage or has a mental disability that may impair his ability to manage finances. However, trust agreements can require time and money to create and they cannot be easily revoked.

Trust agreements are generally used for the following purposes:

• Directing assets: For people with a high net worth or multiple assets, it might be really important that their assets and property end up in the right hands after their death. A trust legally solidifies ownership of their assets and properties or sets out ways in which they must be used upon the death of the owner or the trustor.
• Safekeeping of assets: For high net worth individuals, it can be important to keep their assets and properties safe. Trusts can provide a legal entity to hold on to a property, which doesn’t have to be a family member. This way trustor’s can direct their assets or their use even after their death.
• Managing wealth: Trusts and the rules set in a trust agreement can also help manage wealth for an individual or a family. Especially if the beneficiary or the dependent is underage or mentally impaired, a trust can help manage wealth without running into legal troubles.
• Privacy: Often living wills can be public, depending on the jurisdictions. Trusts provide a more private avenue to direct assets and properties.
• Estate Planning: Trusts can help in estate planning. Typically, assets of a deceased individual are passed on to their immediate family, However, trusts can control how much of an asset is passed on to which member.
• Tax Planning: Trusts can also help in avoiding taxes and probate. When assets in a trust benefit from a set to step basis they can have tax savings but if they are all given away altogether they can carry the original cost basis.

You can read more on tax benefits of trusts here.

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How To Write a Trust Agreement

There are a few components of a trust agreement you can follow while writing a trust agreement:

• Trustee and Trustor: Your trust agreement should define who the trustor or settlor or grantor is. Your trust agreement should also define the trustee or the trustee, or the person in charge of your trust.
• Objective: The trust agreement should outline the objective of the agreement. If your agreement is to pass on all your assets or properties, or if it is to be used in a specific way, it should be clearly outlined in your agreement.
• Kind of Trust: Since there are many types of trust, the trust agreement should define the kind of trust you will be establishing. Some common types of trusts are spendthrift trusts, charitable trusts, blind trust, special needs trusts, etc.
• Property: After you place your property in a trust it is known as the trust property.
• Beneficiary: Your trust should clearly define the beneficiary or beneficiaries–the person or people who will benefit from your trust.
• Rules: If there are any rules to be followed while establishing your trust, using your assets or directing the assets, it must be stated in the trust agreement. Rules should also state the jurisdiction that will be followed when interpreting the agreement.
• Signatures: Your trust agreement should be signed by you in presence of a public notary to avoid legal challenges later on.

You can seek legal services, consulting services or accounting services while creating your trust.

Who Owns Property in a Trust?

In a trust, the ownership of the property depends on the type of the trust agreement. Generally, the trustee holds legal title to the property for the benefit of the beneficiaries and the beneficiaries have equitable ownership rights. The trustee is also known as the fiduciary and must follow fiduciary duties and obligation laid under the trust agreement. The trustee has the duty to manage the trust for the benefit of the beneficiaries as agreed upon in the trust agreement. In an irrevocable trust, the property is solely owned by the trust.

Get Help with a Trust Agreement

Do you have any questions about a trust agreement and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from estate planning lawyers who specialize in trust agreements.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Meet some of our Trust Agreement Lawyers

Dolan W.

Dolan W.

You need a lawyer who's more than just knowledgeable – you need someone who's on your side. That's where I come in. With years of experience handling legal work of all kinds, I'm dedicated to making the law work for you. I'll break down complex legal terms, listen closely to your needs, and create agreements that protect your interests. I'll be there every step of the way, offering clear communication and proactive solutions. Whether you're starting a business or navigating a complex legal matter, I'll help you make informed decisions and achieve your goals. Why Choose Me? I put you first I'm proactive I'm efficient I'm accessible

Daniel D.

Daniel D.

Attorney with 14 years experience in transactions, civil litigation and criminal law

Richard H.

Richard H.

After 30 years of practice I large, publicly traded companies, I went out on my own. I engaged in general practice for 10 years before retiring. I continue to do work on a contract basis.

Dennis S.

Dennis S.

Dennis Sponer co-founded ScripNet, a uniquely designed Pharmacy Benefit Management (PBM) company in 1997. After serving as In-House Counsel for one of Las Vegas’ largest healthcare conglomerates, Dennis devised a payor based technological solution to the challenge of pharmaceutical payment and remittance. As one of the first workers’ compensation specific Pharmacy Benefit Managers in the industry, Dennis pushed the boundaries of what a PBM can do. ScripNet was a three-time winner of the Inc. 500 and was named to the Inc. 5000 numerous times thereafter. Clients of ScripNet included some of the largest carriers, governmental entities, and self-insured employers in the nation, including FedEx, Starbucks, Lockheed Martin, the Cities of Dallas, Atlanta and Philadelphia as well as the State of Texas and the State of Nevada. After fifteen years of exceptional growth and class leading industry recognition, ScripNet was acquired in 2012 by Optum Healthcare Solutions. After selling ScripNet, Dennis served as Executive Vice President for the acquiring company and was successful in integrating ScripNet into the larger entity. His latest venture, HSARx, was a consumer facing Pharmacy Benefit Manager focused on the owners of health savings accounts. He sold HSARx to SwiftScript in October of 2023. Dennis obtained his Juris Doctorate from Brigham Young University where he served as Note and Comment Editor of the Law Review. He then obtained his Master of Laws in Taxation (L.L.M.) from the University of San Diego. After selling ScripNet, Dennis returned to school to earn his TRIUM MBA, the program jointly administered by New York University's Stern School of Business, the London School of Economics and HEC Paris. Dennis is a member of the 1999 Leadership Las Vegas graduating class, was named by InBusiness Las Vegas to its annual Top 40 Under 40 list, is a graduate of MIT's prestigious Birthing of Giants program and holds a certificate in full stack development from MIT. Dennis is licensed as an attorney in California and Nevada and is a past President of the Las Vegas Chapter of the Entrepreneurs' Organization. He serves on the Southern Utah University School of Business National Advisory Board, the SUU Entrepreneur Leadership Council and the UNLV College of Liberal Arts Board. Through his consultancy, SRX Advisors, Dennis serves as an advisor and legal counsel to various startups, health care technology and artificial intelligence firms.