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Trusts

This is Dial-Law with information on trusts as applied to Illinois law only. If you are not a resident of Illinois, we suggest you contact your local county bar association.

A trust is simply an arrangement by which an owner of property transfers the property to a trustee or trustees. The trustee may be one or more individuals (including the grantor or creator of the trust) and/or a qualified corporation, such as a bank or trust company. The property is handled by the trustee for someone's benefit - either the benefit of the original owner or someone the owner designates. Almost any kind of property, including cash, stocks and bonds, and real estate, may be placed in a trust. A trustee may manage investments, carry on a business, or even operate a farm. Usually all of these purposes and the trustee's authority is spelled out in a document which directs the trustee's management of the property and distribution of the income and principal. This information covers three types of trusts: a testamentary trust, a living trust and a land trust.

The testamentary trust is created under a will and takes effect at the death of the person who makes the will. The testamentary trust does not come into effect until a person's death so its terms may be changed as often as the person wishes during his or her life, but only when the person's will is rewritten entirely or amended by a codicil.

Testamentary trusts for children are often contained in the wills of their parents. By creating a trust, parents can choose the trustee and express their intentions as to the management and distribution of the property. Another advantage of a trust is that a trustee may have greater flexibility in managing the property than a court-appointed guardian would have.

A person may also create a living trust, that is a trust that takes effect while the person is still alive. The person may be trustee of the trust, or may name another individual or corporation to act as trustee. If the grantor of the trust acts as initial trustee, the trust should provide for a successor trustee in the event of incapacity or death of the grantor. The trust provides for the management of the grantor's assets.

The living trust may be revocable - that is, the trust agreement may provide that the property owner, called the grantor or settlor of the trust, may change part or all of the terms of the trust. Or the trust, may be irrevocable - not subject to change. Irrevocable trusts may be used to reduce tax liability.

The terms of a living trust are not made part of any public record but remain private between grantor, beneficiary and trustee. The trust may provide for distribution of income from property only, or of both income and a portion of the property or principal. Payments may go to individuals or organizations as the grantor has directed.

A living trust may end at the death of the grantor and its assets distributed according to its terms or under the terms of the grantor's will. More frequently, however, the trust will continue after the death of the grantor, and then serves as a management tool for keeping the property for the benefit of the grantor's beneficiaries - such as the spouse and children.

A land trust involves transfer of title to real estate from an owner to a trustee, while the owner retains the use of the property or assigns it to some other beneficiary. A land trust is different from other types of trusts in that the trustee does not take physical possession of the property and has no responsibility for its care and management. A land trust may be a particularly helpful management device where there are several owners, since a single deed from the trustee will convey title regardless of the number of owners. There are several advantages of the land trust: for example, the name of the owner or beneficiary of the real estate are kept private and may not be disclosed except under certain circumstances. The trust property may be transferred unpon death of the owner or beneficiary without court proceedings. The owner may also mortgage the property without assuming personal liability, if the lender is willing to make such a loan.

Under Illinois law, the interest of the owner or beneficiary of a land trust is personal property, not real property, so a judgment against the beneficiary is not a lien against the real estate.

A land trust may be terminated at any time.

Why create a trust? Some people use trusts for person reasons relating to their own particular family situation; others use trusts to reduce income, gift or federal estate taxes. All trusts should be created with both considerations in mind. However, unless a trust is properly established, the eventual effect of a defective or unfunded trust might be an increase in taxes, a loss of assets, or both. That is why it is essential, when considering a trust, to see an attorney familiar with such matters.