5 Trust Basics
Vero Beach estate planning lawyer Robert J. Kulas has put together some basic information about the elements of a trust and the basic categories of trusts.
What Is a Trust?A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also referred to as a Grantor or Maker, who transfers property to a Trustee. The Trustee holds that property for the beneficiaries designated by the Settlor in the trust agreement. People enter into minor trust agreements all the time without even realizing it. For example, imagine that you are moving out of the country and want to give your sister some valuable coins you once collected instead of taking them with you. Your sister, however, is away on vacation for another two weeks so you ask your brother to safeguard the coins until your sister returns and then give them to her. In that scenario, you have created a trust agreement wherein you are the Settlor, your brother is the Trustee, and your sister is the beneficiary of the trust.
What Are the Different Types of Trusts?All trusts can be broadly divided into two categories – testamentary and living trusts. A testamentary trust is one that does not become active until the death of the Settlor and which is typically triggered by a provision in the Settlor’s Last Will and Testament. A living trust, also referred to as an “inter vivos” trust, activates when all formalities of creation are complete, and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts. As the names imply, a revocable living trust can be revoked or terminated by the Settlor at any time and for any reason whereas an irrevocable living trust cannot be revoked or terminated by the Settlor after the trust becomes active.
Why Might I Include a Trust in My Estate Plan?A trust can help achieve a wide range of estate planning goals; however, some of the more common uses for a trust include:
• Avoiding probate
• Incapacity planning
• Asset protection
• Medicaid planning
• Planning for parents with minor children
• Special needs planning
• Pet planning
How Is a Trust Created?A trust is created using a legal document referred to as a trust agreement. The trust agreement includes terms, created by the Settlor, that govern the administration of the trust by the Trustee. The Settlor may include any term he/she wishes as long as the term is not illegal, impossible, or unconscionable. These terms decide things such as how and when trust assets are distributed as well as how those assets are invested by the Trustee.
Do I Need a Lawyer to Create a Trust?Using a DIY trust agreement form to create your trust is not a good idea. Without the advice of an experienced trust attorney during the drafting of your trust agreement, the likelihood of you ending up with an agreement full of errors and omissions increases considerably. Even a relatively minor mistake in a trust agreement can lead to a complete failure of the entire agreement. That, in turn, may put the trust assets at risk and leave the beneficiaries unprotected.