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
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