Trust, in law, the holding of property by one person for the benefit of another. The creator of a trust is called the settlor; the person or company holding the property in trust, the trustee; and the one for whom the property is held, the beneficiary.
Trusts created during the lifetime of the settlor are called living, or inter vivos, trusts. They are created by a declaration, or deed, of trust. Trusts created by the settlor's will are called testamentary trusts.
Private trusts are set up for individuals, such as the heirs of an estate. State laws subject most such trusts to a certain amount of supervision by the courts. Public trusts are those created for charitable or educational purposes or for such community uses as playgrounds, parks, and museums. They may or may not be supervised by the courts. Many charitable foundations are created as trusts.
Under the laws of some states, it is possible to create a spendthrift trust. Under its terms, the creditors of the beneficiary may not reach the trust property to satisfy their debt claims.
The duties of the trustee include the prudent management of the property, or the investment of the funds, in accordance with the terms of the trust and applicable law. He must account for both principal and income. The trust instrument may require him to collect and pay over the income to the beneficiary; or it may require him to hold and reinvest it. The compensation received by the trustee for his services is fixed by the terms of the trust or by the court. Trustees may be individuals or corporations.
If the trustee intentionally, or through negligence, fails to carry out the obligations imposed by law and by the trust instrument, he commits breach of trust. The trustee is liable to the beneficiary for a loss resulting from a breach. If the loss is serious, the trustee may be removed by court order. Intentional breach—as when a trustee misappropriates the property for his own use—is generally a crime.