An Introduction to Trust Lingo

Trusts are an unfamiliar area for most folks. Here is a very basic introduction to some trust terminology.

What is a Grantor or a Settlor?

A Grantor or a Settlor is the person or persons who  establishes and funds a trust.

What is a Trustee?

This is the person or persons who will be managing and administering the trust. There can be a trustee or co-trustees. Also, a successor trustee should be named as well in the event that the initial trustee or one of the co-trustees can no longer serve.

What is a Beneficiary?

Those individuals who will receive distributions (i.e., cash, assets, etc.) upon a specific time appointed in the trust document.

What's a Tax ID or EIN in the context of a Trust?

A Taxpayer Identification Number or Employer Identification number – Like an American citizen would have a Social Security number, which can be used as a tax identifier, a Trust can also have a Tax ID or Employer Identification number. Such a number can be acquired from the IRS at IRS.gov.

Be advised that a trust has very compressed marginal tax brackets. Given that the taxpayer identification number is strictly a tax issue and not a legal issue, you should consult your tax advisor before obtaining one.

What is Trust Funding?

Upon the trust being signed by all necessary parties, the process of funding the trust must occur. Just because you have signed the trust documents does not mean that the trust automatically owns assets. Steps must be taken to change the title of any asset into the name of the trust including real estate, accounts, and vehicles.

What is a Gift Tax Return?

If a trust has been funded by gifting, a gift tax return should be filed on their behalf. However, it is unlikely that gift taxes will have to be paid. Neither the donees/recipients nor the trust is required to file a gift tax return, only the donor(s).

Also, be advised that any asset gifted to a trust will retain the cost basis of the donor, meaning that when the trust sells the asset the trust will be subject to capital gains tax on the gain realized. We always advise that you should consult your tax advisor with particular tax questions.

Schedule a Consultation Today

Thinking about a trust? Need a fuller discussion on trust lingo? Forming a trust is very dependent upon your unique circumstances and needs. Any trust should be tailored to benefit you and your family's specific needs, particularly if long-term care planning is involved. If you have questions about trusts, or need to revise your estate planning documents, contact Darpel Elder Law Services. Our attorneys and staff are dedicated to exceeding our clients expectations and can assist you with all of your long-term planning needs. Call today to schedule a consultation.