What is a Trust? What is an Estate?

This course chapter provides a comprehensive look at the income taxation of trusts and decedents' estates and the beneficiaries of trusts and estates under the IRC. Trusts and estates are treated as separate taxable entities under the IRC, and they are unique in the way they are treated. A trust is a legal contract between the creator and the trustee for the benefit of another individual, a charitable organization, or an animal. A trust may be created by a transfer in trust made in the settlor's will (testamentary trust), or a transfer in trust during the settlor's lifetime (inter vivos trust). A trust must have definite beneficiaries. A beneficiary is definite if the beneficiary can be determined, either now or in the future. A so-called “investment trust” will not be classified as a trust if there is a power under the trust agreement to vary the investment of the certificate holders.