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Understanding What a Sweetheart Trust Is

Understanding What a Sweetheart Trust Is

What is a Sweetheart Trust? We know trust is a scary legal word, but we're glad to unpack it for you. What it actually describes is a particular type of relationship that is recognized by the law. In a trust, someone manages assets - money and property - for the benefit of others. A trust consists of three parties:

  • A trustor. The trustor is the person who creates the trust with her assets.
  • A trustee. This is the person who manages the assets.
  • A beneficiary. The beneficiary receives the benefit, generally profits, of the trust. A beneficiary can be a person, people, or an organization.

The trustor, trustee, and beneficiary do not all have to be different. For example, a trustor might create a trust for his own benefit, in which case he would also be the beneficiary.

You might hear a trust described as a "fiduciary relationship;" this means that the trustee, who manages the money or property, has certain responsibilities to the trust, like not mismanaging the money. These duties exist because being a trustee is a position of trust (it's right in the name - trustee, meaning the person who is trusted).

Why trusts? There are multiple reasons to create a trust, but one reason is that they have benefits when used as part of an estate. They may reduce an estate's tax obligation and help avoid the court process called probate.

So what is a "sweetheart trust?" If you add sweetheart in front of trust, you have a type of trust a married couple creates. The spouse who lives longer will obtain almost complete control of the trust, so can be great for a couple who want to avoid probate and leave a gift for the surviving spouse to use as he or she sees fit.

There are plenty of estate planning and trust options; sweetheart trusts are great but may not be right for everyone. The best way to determine the best fit for you is to get in touch with a Torrance estate planning attorney; contact us for an appointment and we can explain your options.