What is a trust?

A trust is accurately defined as a legal arrangement where one party holds property for the benefit of another. This mechanism involves three key parties: the grantor, who creates the trust and provides the assets; the trustee, who manages the trust and its assets; and the beneficiary, who ultimately benefits from the trust's assets. The purpose of a trust is often to manage and protect assets, provide for beneficiaries, or achieve specific financial or estate planning goals.

This formal structure is essential in fiduciary activities because it delineates responsibilities and duties of involved parties, which is crucial for maintaining legal and financial accountability. Unlike informal agreements or methods for holding personal debts, trusts are recognized and regulated under law, providing a higher level of security and enforceability for the interests of the beneficiaries.