For the longest time the word “Trust” was just scary to me. I am not sure why, but I know that it always had to do with lawyers, lots of money, and was just confusing. If you are at all like me, allow me to take a few minutes to demystify this term and explain a little bit about how trusts work in real estate.
Lets start with some definitions.
The Trustor is the person that creates the trust. With me so far??
The Trustee is the person (or company) that is responsible for carrying out the trust. This could include holding on to property, money, or any other “stuff”. So, to review, the Trustor gives something to a Trustee to hold on to for a prescribed amount of time. The Trustee is required to give certain loyalties to the Trustor and must follow his or her instructions.
The Beneficiary is the person who receives the benefits of the trust.
So, lets give an example of how a trust might work. Lets say Grandpa wants to leave a large parcel of land to little Johnny. Maybe he wants to do it for tax reasons or possible inheritance issues that doesn’t matter right now. Grandpa hires a lawyer to be the Trustee. Who is the Trustor?? Very good, that is Grandpa and little Johnny is the Beneficiary. Once all the paper work is signed the lawyer is holding onto the property. Now, somewhere in the stack of legal jargon explains what needs to happen for Johnny to take possession of the property. For our example, lets say that it occurs when he turns 25. When that magical day comes after a little more paper work Johnny takes possession of the property and that is that.
There are all sorts of other random reasons both people and companies create trusts. Whether it is to distribute funds, hide ownership of property, or any other creative reasons people give people their things to hold on to. Yes, sometimes the Trustor can also be the Beneficiary too!
Let’s leave things at that for now. Again, the more you know about the little details of the real estate industry, the better chance at negotiating a better deal on your next purchase!
