The Basics of a Trust
For someone with 1 or more businesses, real property and/or personal property, a trust is a very valuable tool. A trust is an estate planning tool that can be used as an asset management tool during life, after death and to replace or supplement a will. Most importantly, they help shield property. Overall, trusts are a popular estate planning tool.
Creation of a Trust
In order to create a trust, you need someone who owns the property that will be held in trust (referred to as the “trustor,” “grantor,” or “settler”), someone to whom legal ownership will be transferred (referred to as the “trustee”), and someone for whose benefit the trustee will manage the trust (referred to as the “beneficiary”).
A grantor may act as both a grantor and a trustee in a trust. However, such a grantor would still owe a fiduciary duty to the beneficiaries just like any other trustee would. The grantor may also be a beneficiary, so a trust may have the same grantor, trustee and beneficiary. No matter how many positions that the grantor holds in a trust, the trust does not become effective until property is transferred from the grantor to the trustee.
There is a fiduciary relationship between the trustee and the beneficiary. In other words, the trustee must act solely for the benefit of the beneficiary when managing the property held by the trust. The trustee holds legal accountability to the beneficiary for any damage to his or her interests due to the trustee’s actions in managing the trust. The trustee is also often compensated for their management role.
Testamentary and Living Trusts
Trusts are classified into 2 overall, broad categories. These categories are testamentary trusts and living trusts. Property is transferred into a trust after death via a testamentary trust whereas property is transferred into a trust during life with a living trust.
A testamentary trust is typically provided for in a will. These are the types of trusts being used where you hear about a minor whose inheritance is being managed by a trustee. This type of trust is not even created until the grantor is deceased. It allows for the spreading out of benefits over a period of time, or a delay in the spreading of benefits, as opposed to 1 lump sum gift or an immediate benefit upon the grantor’s death. The idea behind the testamentary trust is that it reinforces the preferences and goals of the grantor after their death.
As opposed to a testamentary trust, a living trust is created during the grantor’s lifetime. It also may continue after death. Unlike a testamentary trust, where the property still has to go through the probate process, the property held by a living trust does not generally need to go through the probate process to go to the beneficiaries. A living trust may be either an irrevocable trust or a revocable trust. As the name suggests, the difference between the 2 revolves around revocation. The terms of a trust can be revoked by the grantor after a revocable trust is created and the guarantor’s property is transferred to the trustee, but a grantor of an irrevocable trust relinquishes the right to change the trust terms. A revocable trust is generally used to supplement a will but often becomes irrevocable after the grantor’s death.
Creating One for Yourself
Trusts go beyond the information provided here. Although the focus here is on the basics for creating a trust to use as a will supplement, they are also great tools for protecting property from creditors and other liabilities. This makes it a great tool for someone with valuable personal property, real property and/or their own business.
Our attorneys at Dodson Legal Group counsel clients on which trust is right for them and their family based on their preferences, goals and wishes. Please contact our office today at 844-4DODSON for a consultation with an attorney to discuss what type of trust is best for you and your family if you have your own business and/or own personal and/or real property that needs protecting but are missing a trust in your estate plan.