Basic trust creation is a pretty simple affair. To create your trust, you (referred to as the “trustor,” “grantor,” or “settlor”) designate a person or institution (referred to as the “trustee”) to manage all or certain parts of your property for the benefit of a third party of your choice (referred to as the “beneficiary”). The trustee will usually receive some sort of compensation for the management of your property. Trusts create what is known as a “fiduciary” relationship between the trustee and the beneficiary. What this means is the trustee is required to always act in the best interests of the beneficiary when it comes to the trust property. If the trustee fails to live up to their duties, they are held legally accountable to the beneficiary for any damages to his or her interests. You are able to be the trustee yourself, and keep ownership of your property instead of transferring it, but you are still obligated to act in a fiduciary capacity. You are also able to name yourself as one of the beneficiaries of your trust. However, in all trust arrangements, the trust won’t become effective until you transfer your property to the trustee.
Example: You wish to transfer money to an account, where the bank would be named as the trustee, for your child’s living expenses. Your specific instructions are to give your child a certain amount every year for the next 10 years. The bank would be required to manage the money properly, ensuring that the money remains available. Your child would not be able to access the account, until the bank gives him the yearly amount on which you have already decided.