A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settlor", the party to whom the right is entrusted is known as the "trustee", the party for whose benefit the property is entrusted is known as the "beneficiary", and the entrusted property itself is known as the "corpus" or "trust property". A testamentary trust is created by a will and arises after the death of the settlor. An inter vivos trust is created during the settlor's lifetime by a trust instrument. A trust may be revocable or irrevocable; an irrevocable trust can be "broken" (revoked) only by a judicial proceeding.
The trustee is the legal owner of the property in trust, as fiduciary for the beneficiary or beneficiaries who are or are the equitable owners of the trust property. Trustees thus have a fiduciary duty to manage the trust to the benefit of the equitable owners. They must provide a regular accounting of trust income and expenditures. Trustees may be compensated and be reimbursed for their expenses. A court of competent jurisdiction can remove a trustee who breaches their fiduciary duty. Some breaches of fiduciary duty can be charged and tried as criminal offenses in a court of law. A trustee can be a natural person, a business entity or a public body. A trust in the United States may be subject to federal and state taxation.
A trust is created by a settlor, who transfers title to some or all of their property to a trustee, who then holds title to that property in trust for the benefit of the beneficiaries. The trust is governed by the terms under which it was created. In most jurisdictions, this requires a contractual trust agreement or deed. It is possible for a single individual to assume the role of more than one of these parties, and for multiple individuals to share a single role. For example, in a living trust it is common for the grantor to be both a trustee and a lifetime beneficiary while naming other contingent beneficiaries.
Trusts have existed since Roman times and have become one of the most important innovations in property law. Trust law has evolved through court rulings differently in different jurisdictions, so statements in this article are generalizations; understanding the jurisdiction-specific case law involved is tricky. Some U.S. states are adapting the Uniform Trust Code to codify and harmonize their trust laws, but state-specific variations still remain.
An owner placing property into trust turns over part of their bundle of rights to the trustee, separating the property's legal ownership and control from its equitable ownership and benefits. This may be done for tax reasons or to control the property and its benefits if the settlor is absent, incapacitated, or deceased. Testamentary trusts may be created in wills, defining how money and property will be handled for children or other beneficiaries.
While the trustee is given legal title to the trust property, in accepting title the trustee owes a number of fiduciary duties to the beneficiaries. The primary duties owed are those of loyalty, prudence and impartiality. Trustees may be held to a very high standard of care in their dealings to enforce their behavior. To ensure beneficiaries receive their due, trustees are subject to a number of ancillary duties in support of the primary duties, including duties of openness and transparency, and duties of recordkeeping, accounting, and disclosure. In addition, a trustee has a duty to know, understand, and abide by the terms of the trust and relevant law. The trustee may be compensated and have expenses reimbursed, but otherwise must turn over all profits from the trust properties and neither endebt nor riskily speculate on the trust assets without the written, clear permission of all of the adult beneficiaries.