Talking about Trusts

Talking about Trusts – to learn more, find an Estate Planning lawyer at www.ZeekBeek.com

What is a Trust? A trust is formed when a person, the settler (sometimes also called the “grantor” or the “creator”), transfers property to another person, the trustee (or trustees if more than one), to be held for the benefit of another person (or persons), the beneficiary (or beneficiaries).  For example, assume Abe transfers $100,000 cash to his uncle Bob and directs Bob to hold the money in trust for the benefit of Abe’s children.  In that case, Abe is the settler, Bob is the Trustee, and Abe’s children are the beneficiaries.   Working with a lawyer, the settlor will decide what trust terms he or she wants, and those terms will be set forth in a written document called the trust instrument, which will be signed by the settlor and the Trustee. 

How does a Trust work? The beneficiaries, as the name suggests, are the people who will actually benefit from the trust property, usually by receiving payments from the trust, which are referred to as distributions.  The Trustee is responsible for managing the trust property in the best interests of the beneficiaries, for example by investing the trust assets prudently, and taking care of administrative matters, like filing any necessary tax returns.  The Trustee can also be given authority (“discretion”) to decide, for example, whether it’s a good idea to make a distribution to any given beneficiary and, if so, how much to distribute.   The amount of discretion a Trustee will have over distributions is one of things that will be spelled out in the trust instrument.

What are Trusts used for? Trusts are widely used for a myriad of estate planning purposes.  One of the major advantages of a trust is that it permits a person to make property available to family members, for example a spouse or children,  but at the same time lets the person control the way in which the family members will be able to benefit from the property.   There are many situations where that kind of control is desirable.   Certainly if the beneficiaries are minors or are incompetent, they cannot have direct access to the property.  But those are not the only cases. 

For example, let’s say the settlor wants to leave money for his son who is a young adult. The settlor is concerned about giving a 21 year old a large sum of money – the son may squander the money, it may sap his initiative, he may be preyed upon by fortune hunters, etc.  In such a case the settlor could instead transfer the money to a trust for his son, and specify that his son will receive the income from the trust each year, and will receive ½ of the property from the trust at age 30 and the rest at age 35 (or whatever ages the settlor thinks advisable).   

Or perhaps the settlor is married for the second time, and has children from his first marriage.  If he leaves his property to his wife she may in turn leave it to someone else (perhaps even a subsequent husband), and his children may receive nothing.   Instead, the settlor can leave the property in a trust that provides for income to the surviving spouse for life, with the property passing to the children of the first marriage upon the surviving spouse’s death.

Trusts can also be used to provide for family members who are not good at or are not interested in managing money, or who are profligate spenders, or who have substance abuse or other issues that make it unwise for them to own property directly.  The Trustee can make the investment decisions, and can also be given discretion over making distributions if appropriate.  For example, a trust could provide that the beneficiary will not receive any distributions at all unless the Trustee decides it is advisable; sometimes that kind of restriction is actually in the best interests of the beneficiary. 

Trusts are also used extensively for tax planning (for example, to hold life insurance policies), for Medicaid planning, and to provide for the supplemental needs of disabled individuals.   

It is not possible to list all the possible ways that a trust can be set up—powers of appointment, rights of withdrawal, and/or payments for specified purposes like education, are just some of the possibilities.  That flexibility makes trusts an essential estate planning tool, but also necessitates consultation with an experienced lawyer to decide on the best terms to meet each person’s unique situation. 

Disclaimer – Blog Not Legal Advice

This blog is not legal advice and no attorney-client relationship is formed.  The information and materials on this blog are provided for general informational purposes only and are not intended to be legal advice.  The law changes frequently and varies from jurisdiction to jurisdiction.  Being general in nature the information and materials provided may not apply to any specific circumstances.  Nothing on this blog is intended to substitute for the advice of an attorney.  If you require legal advice, please consult with an attorney licensed to practice in your jurisdiction.