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What is a personal trust?

A trust is a legal arrangement in which you (as the "Grantor") place property in trust for the benefit of one or more beneficiaries. A trust is established by a trust agreement drawn up by your attorney in which you name someone (the "trustee") to manage the assets placed in the trust. The trust agreement also contains your instructions on how distributions are to be made to beneficiaries. Trusts can range from simple to complex depending on their purpose.

A trust can have a single grantor or multiple grantors. It may have a single beneficiary or multiple beneficiaries (who may or may not be treated alike). It can have a single trustee or trustees. In certain types of trusts, a sole grantor can be the sole trustee and also the sole current beneficiary.

Property of all kinds can be placed in a trust, including assets such as cash, stocks and bonds, real estate, tangible personal property, life insurance, interests in limited liability companies or limited partnerships, and (with some restrictions) stock in "S" corporations.

Trusts are considered separate persons under the law and most will be assigned their own Taxpayer Identification Number, requiring separate filing of tax returns. Certain types of trusts (most notably revocable living trusts) are disregarded entities for tax purposes. This means that the grantors do not file separate tax return for the trusts, but report trust income and expenses on the grantors' own individual tax returns.

What are the two basic types of trusts?

The two broad categories of trusts are testamentary trusts and living (intervivos) trusts. A testamentary trust is created within a will and becomes effective only after your death. A living trust operates while you are living and becomes effective when it is signed and assets are transferred to it. Living trusts can be either revocable or irrevocable (see Types of Trusts.) A special kind of revocable trust is an Alaska Community Property Trust. Living trusts which are irrevocable will be referred to in this overview simply as "irrevocable trusts."

If you have an irrevocable trust, you cannot change the terms or revoke it, although in Alaska you can name someone to serve as a "trust protector" and give that person the authority to make changes within certain parameters. An irrevocable trust is not an alternative to a revocable living trust, but is a special estate planning tool designed with specific objectives in mind. Some of the varieties of irrevocable trusts are described in Types of Trusts and include Alaska Asset Protection Trusts, Alaska Dynasty Trusts (which can continue for generations), and life insurance trusts.

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This content is not intended to be legal advice nor is it intended to be a comprehensive discussion of trust law. Everyone's circumstances are different and we urge you to contact an attorney concerning your individual situation.