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A trust is a form of division of property rights and a fiduciary relationship, in which ownership of assets goes to a third party, known as a trustee, and the beneficial enjoyment goes to the beneficiary. The person who transfers the property into the trust is known as the grantor or settlor.

A trust is a right, enforceable in equity, to the beneficial enjoyment of property held by another party who actually holds legal title.  The property held may itself be called a "trust," especially if it consists entirely of invested money (i.e., a trust fund).

The formation of a valid trust requires:

  • A settlor (the owner of assets)
  • Intent and capacity (the settlor should have intent to create the trust and a capacity to grant their property rights)
  • A definitive beneficiary (this beneficiary should be reasonably ascertained now or in the future)
  • A trustee (the person who holds and administers assets in the interests of the beneficiary)
  • Assets
  • Legal formalities (the trust should be in compliance with the law of that jurisdiction; such as being in writing, signed, and notarized)

The trustee has fiduciary duties to perform in the interest of the beneficiary. The trustee and beneficiary usually cannot be the same person unless the trustee is not the sole beneficiary. If the trustee resigns, dies, or refuses to act as a trustee, the trust still exists. The court will appoint another trustee, called the successor trustee

The trust assets may not be transferred to the trustee contemporaneously with the signing of the trust instrument. They can be transferred even after the death of the settlor.

[Last updated in August of 2022 by the Wex Definitions Team]