This page includes trust definitions from "L" through "Z." For the first half, including trust definitions from "A" through "K," CLICK HERE.
Inter Vivos Trust: A trust established during the life of the settlor.
Involuntary Trust: See “Constructive Trust,” above.
Irrevocable Trust: A trust that cannot be modified or revoked by the settlor once it is established. Such a trust is usually its own entity for tax purposes (meaning the income it generates will be taxed either to the beneficiaries that receive it or such income will be taxed to the trust if not distributed). Also, the assets in such a trust are usually not included in the taxable estate of the settlor at the settlor’s death.
Irrevocable Life Insurance Trust (“ILIT”): A trust that is established to hold life insurance on the settlor or his/her family. Such a life insurance trust is usually drafted to be an irrevocable trust so that the assets of the trust will not make up part of the settlor’s taxable estate at death. A settlor may fund an irrevocable life insurance trust in such a way that the moneys used to fund the trust do not count against the settlor’s lifetime estate and gift tax credit (meaning there is no chance that these transfers could lead to an estate tax at death). This funding scheme utilizes Crummey contributions. The moneys moved into the trust are used by the trust to purchase and maintain life insurance policies. Additionally, the insurance proceeds that are paid out at death do not go into the taxable estate of the decedent, and are therefore not subject to his or her estate tax.
Land Trust: A trust drafted to hold real property in which the trustee appears to hold full powers over the administration of the real property. On the property records, the land is titled to the trustee through a deed of trust. However, these trusts typically give the beneficiary enough control over the real property or the trustee to negate the trust relationship for tax or other purposes.
Limited Trust: A trust created for a set period of time.
Liquidation Trust: A trust formed to receive the proceeds of the liquidation of a business or estate with the ultimate purpose to distribute the proceeds out to beneficiaries.
Living Trust: A trust formed during the life of the settlor. An Inter Vivos Trust.
Marital Deduction Trust: This trust is a testamentary trust often used in conjunction with the Credit Shelter Trust (see “A-B Trust Planning”). A Marital Deduction Trust is drafted to meet the requirements needed to use the unlimited marital deduction. Assets in the Marital Deduction Trust benefit a surviving spouse for life and are included in the surviving spouse’s taxable estate at death.
Medicaid Trust: This refers to either (i) one of several trusts drafted according to the Medicaid rules which allows an individual in need of Medicaid benefits to place assets in trust for an approved purpose without risking a delay in qualification under the asset test of Medicaid qualification, or (ii) a Special Needs Trust, defined below.
Ministerial Trust: A trust requiring the trustee to exercise only reason. Typically thought of as requiring only ministerial acts that most intelligent trustees could manage (a lower amount of expertise than a Discretionary Trust would require). Trusts meant to collect assets from a specific series of events and then distribute the assets to a set of known beneficiaries would fall under this category.
Naked Trust: See “Dry Trust,” above.
Net Income Makeup Charitable Remainder Trust (NIMCRUT): A Charitable Remainder Unitrust (see definition above) that provides for income payments to be made up over the term of the trust if there is not enough income generated in any period to pay out the full amount of the unitrust interest.
Nominee Trust: An arrangement whereby trustees agree to hold property, pursuant to a written declaration of trust, for the benefit of undisclosed beneficiaries.
Non-Discretionary Trust: See “Fixed-Investment Trust,” above.
Oral Trust: A trust agreement formed between a grantor and trustee without the use of a written instrument.
Passive Trust: A trust that requires the trustee only to hold title to the property. No active management is required by the trustee. Compare with “Active Trust,” above.
Perpetual Trust: A trust drafted to continue indefinitely.
Pour Over Trust: A trust created by will (typically referred to as a pour-over will) into which the will “pours over” all the decedent’s assets.
Power of Appointment Trust: A trust used to qualify assets for the marital deduction. Assets are placed into trust by a spouse, typically at death, with the income of the trust required to be distributed to the surviving spouse for the life of such spouse. The surviving spouse is given an unqualified power of appointment to determine who should benefit from the trust assets at the death of the surviving spouse (with the ability to benefit the surviving spouse’s estate, creditors, etc.).
Precatory Trust: A trust established by a court from language in a will not specific enough to establish a trust without court intervention.
Principal: The assets that make up the trust.
Private Trust: A trust created to benefit known beneficiaries or categories of beneficiaries that are not charitable.
Professional Trustee: A Trustee that is independent and functions as a trustee in the normal course of its business. Most Professional Trustees are banks and trust companies.
Public Trust: See “Charitable Trust,” above.
Qualified Domestic Trust (“QDOT”): A trust that qualifies for the unlimited marital deduction when the surviving spouse is not a U.S. citizen or resident.
Qualified Personal Residence Trust (“QPRT”): A trust that holds only an interest in one personal residence (and related assets) of the grantor and that complies with Treasury Regulation 25.2702-5(c). The grantor retains the right to occupy the residence for a period of time after which the residence becomes property of the beneficiary. If the donor dies prior to the term of the trust, the trust terminates and the property reverts to the grantor’s estate. If the grantor lives through the term of the trust, the beneficiaries receive the residence at a discounted gift value for the donor. This type of trust is one of a multitude of trusts designed primarily as a wealth transfer tool.
Qualified Terminable Interest Property Trust (“Q-TIP”): Such a trust is established to qualify for the unlimited marital deduction. Property placed in such a trust will be used for the benefit of a spouse during the life of such spouse. However, such spouse does not have the ability to appoint the property to anyone else at his/her death. Property in a Q-TIP trust qualifies for the marital deduction only to the extent a personal representative (also know as an executor) elects to have such property treated as terminable interest property.
Real Estate Investment Trust (REIT): A REIT is a corporation that receives special tax treatment and is formed to allow many individuals or entities to invest in real estate. The REIT typically provides the real estate investment expertise and allows the investors to passively invest.
Reciprocal Trust: A trust made for the benefit of a beneficiary who similarly makes a trust for the benefit of the grantor of the first trust.
Resulting Trust: A trust arising by operation of law or act of court when it appears that the intent of the parties was to create a trust relationship.
Revocable Trust: A trust that may be modified or revoked by the settlor. This type of trust is considered a grantor trust resulting in the income generated being taxed to the settlor and the assets in the trust at the settlor’s death being included in the settlor’s taxable estate.
Revocable Living Trust: A trust created where the settlor is often both the trustee and the beneficiary (during the life of the settlor). Trust assets are held in trust but managed in largely the same way they were before establishment of the trust. Because of the nature of the trust relationship, a Revocable Living Trust is a non-entity for tax purposes. Income will flow to the settlor and assets in the trust will be included in the settlor’s taxable estate at death. However, assets in the trust will not require probate upon the death of the settlor. Additionally, because trusts are not recorded at death in the same manner as wills, a Revocable Living Trust can provide confidentiality to the family of a decedent (the gifts to beneficiaries are not a matter of public record).
Rule Against Perpetuities: The rule, now modified in a significant number of jurisdictions, that no interest in property is good unless it must vest, if at all, not later than twenty-one years after some life or lives in being at the time of the creation of the trust.
Savings Account Trust: See “Totten Trust,” below.
Secret Trust: A relationship formed by oral agreement in which one party agrees to hold the other party’s property for a period of time.
Settlor: An individual who moves assets into trust during life. Such an individual is said to “settle” the trust. See also “Grantor,” above.
Shifting Trust: A trust that provides for a change in the beneficiaries is certain contingencies come to pass.
Short Term Trust: A trust that is drafted to exist for only a very limited period of time.
Simple Trust: A trust that, by its terms, distributes all of its income currently. See I.R.C. §651-52. Compare with “Complex Trust,” above.
Special Trust: A trust that is created to give a trustee powers needed to complete a specific task.
Special Needs Trust: A trust created to provide benefit to a disabled individual without disqualifying such individual from private or public benefits programs such as Medicaid. This type of trust is a discretionary trust that will not provide the basics of care to an individual but will provide supplemental benefits to such person. Property drafted, such a trust will not disqualify an individual from a benefit program such as Medicaid nor will it be responsible for repayment of such benefits rendered after the death of the disabled person.
Spendthrift Trust: A trust that has provisions protecting the beneficiary from the beneficiary’s potential poor financial decisions or liability. Such a trust will prevent the beneficiary from transferring the beneficiary’s interest in the trust and usually provides only discretionary distributions to the beneficiary.
Split Interest Trust: A charitable trust in which the charity receives either a term (or life) income interest or in which the charity receives a remainder interest after a term (or life) interest. In either case, a non-charitable beneficiary receives the other interest.
Sprinkle Trust: A trust that gives the trustee the discretion to pay as much of the income and principal as the trustee deems appropriate to the beneficiary. Alternately, a trustee may be given a sprinkle power in the trust to be used under certain circumstances or up to certain limits.
Spray Trust: See “Sprinkle Trust,” above.
Supplemental Needs Trust: See “Special Needs Trust,” above.
Support Trust: A trust that gives the trustee the power make distributions to the beneficiary of amounts only for the beneficiary’s support, education, and/or maintenance.
Testamentary Trust: A trust established through a testamentary document (a Will or other trust) at the death of the decedent.
Totten Trust: A bank account that that is payable upon death to another, subject to the creditors of the deceased.
Transgressive Trust: A trust that violates the rule against perpetuities.
Trust: A relationship formed by a settlor transferring assets to a trustee to be managed according to the trust document for the benefit of beneficiaries.
Trustee: The individual or company that manages assets placed into a trust by following the language of the trust document. Trustees may be either family members, friends, or professional trustees such as trust companies or banks. In some situations, the trustee may be the original settlor and/or beneficiary (e.g., a Revocable Lead Trust).
Trustor: See “Settlor,” above.
Unit Investment Trust: An unmanaged fund of investments (typically bonds) sold in units of a set dollar amount.
Unitrust Interest: In the trust context, a payment that is made regularly (usually annually) that is determined based on a percentage of the trust’s total value of assets and recalculated each period. Compare with “Annuity Interest,” above.
Voting Trust: A trust relationship formed by shareholders of a corporation whereby shares of various shareholders are pooled to be voted by a one shareholder or trustee as a block.
This page includes trust definitions from "L" through "Z." For the first half, including trust definitions from "A" through "K," CLICK HERE.
