A Trust Primer

Submitted by Southwest Investment Advisors on November 18th, 2014

Estate planning often can involve the creation of a trust – a legal entity created to hold assets for the benefit of certain persons or entities. Trusts are managed by trustees who often hold title on behalf of the trust. The terms trustors, settlers or donors refer to the founders of the trusts, who establish them through a written declaration spelling out the terms and conditions of conduct. Although the assets in a trust are usually given by its creators, others may add to them. During the life of the trust, profits and sometimes a portion of principal (called “corpus”) may be distributed to beneficiaries who receive the trust’s remaining assets at a future time, such as on the death of the last trustor. A trust may take the place of a will – which avoids court-supervised probate.


Here are capsule explanations of trusts common to estate planning:



A trust created to dispense charity or provide social benefits. A charitable remainder trust names beneficiaries who receive income for a period of time, after which the principal passes to charity. A charitable lead trust names a charity as beneficiary for a period of time, after which named individuals succeed as beneficiaries.



A trust that cannot be revoked by the trustor after its creation except upon the consent of all the beneficiaries. In an irrevocable life insurance trust, the principal consists of a life insurance policy or its proceeds.



A trust created while the trustor is alive that can be changed during his/her lifetime. Living trusts also are called inter vivos trusts.



A trust to hold qualified terminable interest property for purposes of taking the marital deduction. It allows the first spouse to die to specify who will receive any assets after the surviving spouse dies. It also defers estate taxes until the death of the second spouse.



Created in the trustor’s will and effective upon his or her death. A marital – or AB – trust, is a testamentary trust that names the surviving spouse as a beneficiary. Other variations – called bypass trusts, bypass shelter trusts, credit shelter trusts or shelter trusts – are designed to reduce the surviving spouse’s taxable estate by permitting the first to die to leave the estate to a trust whose beneficiary is the surviving spouse at whose death any remaining assets go the children or other descendants.


The use of trusts involves a complex set of tax and legal considerations.  You should consult with an experienced estate planning professional before implementing such strategies.  


Some estate planning and tax services may be offered through a qualified third party. LPL Financial does not provide tax or legal advice.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

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