A trust is a legal instrument which allows the owner of the property to make a transfer of their property. Trusts also allow the owner to have their property, which is referred to as a trust asset, managed on behalf of another individual, known as a trustee.
The laws governing trusts vary by state. In general, a trust is an efficient way for individuals to transfer their assets in a manner in which they can control and manage.
For example, an individual may place specific conditions on trust property which must be fulfilled or completed prior to the property being transferred.
What are the Requirements for the Valid Creation of a Trust?
In general, there are several requirements which must be satisfied in order for a trust to be valid, including inter vivos trusts and testamentary trusts, including:
- The existence of a settlor, or creator;
- The settlor delivers legal title to the property;
- The property is delivered to a trustee. The property may be referred to as:
- Res;
- Corpus; or
- Trust principal;
- The trustee must hold legal title to the property in the trust;
- The legal title is held for the benefit of one or more trust beneficiaries;
- There is intent to create a trust;
- The intent to create the trust is for a lawful purpose; and
- The document which embodies the trust is validly executed.
What is a Trust Fund?
Trust funds are separate legal entities which hold property and other assets for the benefit of an individual or an organization. Trust funds can also be used to benefit future generations.
Assets which may be placed in trust funds include:
- Money;
- Stocks or bonds;
- Property;
- A business; or
- Anything else of value.
Trust funds are typically established for individuals or entities to create terms which dictate the way in which the assets can be gathered and distributed in the future.
There are three main parties to a trust fund, including:
- The grantor;
- The beneficiary; and
- The trustee.
The individual who creates a trust may be referred to as:
- The grantor;
- The donor; or
- The settlor.
The grantor is the individual who donates the property to the trust. The beneficiary is the individual for whom the trust fund was established.
The assets in the trust fund do not necessarily belong to a beneficiary. Instead, the assets are distributed to the beneficiary according to the wishes of the grantor and in such a way which is beneficial for all beneficiaries.
Once a trust is formed, it may be managed by an individual or by a corporate entity, known as the trustee. Individuals who may be assigned as trustees include:
- Relatives;
- Professionals;
- Corporations;
- Loyal friends; or
- Other individuals or entities.
A trust fund can also have multiple trustees. A trustee ensures that the trust fund is able to maintain their duties applicable under the law and pursuant to the trust documents.
In many cases, a small management fee is given to the trustee for managing a trust fund.
What Are the Different Types of Trusts?
There are different types of trusts individuals can use, such as ones which are enacted while they are still alive and some that go into effect after they pass away. Living trusts can be revoked and permit the controlling of assets during the grantor’s lifetime.
A living trust allows a grantor to distribute or transfer assets to any number of beneficiaries. This type of trust is commonly used to transfer funds to children or grandchildren.
A grantor can modify or revoke a trust while they are still alive. An irrevocable trust, however, may be difficult to modify. It does, however, offer tax benefits.
Specific types of trusts which a grantor can create include:
- Charitable trusts, which are created to benefit a particular charity or the public in general. Charitable Remainder Unitrusts (CRUTs) are formed to provide assets to specific charities at the expiration of the trust;
- Marital trusts, which are funded at the death of one spouse. Marital trusts are eligible for unlimited marital deduction;
- Land trusts are a trusts which are created to manage property;
- Medicaid trusts, which assist elderly individuals in regards to probate issues and assets for
- Medicaid matters and payments; and
- Special needs trusts, which are trusts that are formed for an individual who receives government benefits so as not to disqualify the beneficiary from attaining the government benefits.
How Do I Fund a Trust?
Trusts are funded by transferring property into the trusts. This creates a way to distribute assets to the beneficiary while an individual is living and after they have passed away. Funding a trust while an individual is alive guarantees that their property is distributed according to their wishes.
An individual’s wishes for their trust property can be specified in their will. How a trust is funded also depends upon the nature of the property.
An individual can transfer real estate property into a trust. Other types of titled property can also be placed in trust, including:
- Cars;
- Trucks;
- Boats; and
- RVs.
In addition, funds may be raised through:
- Accounts receivable;
- Transferring business interests; and
- Funding securities.
An individual can use a pour-over will to fund their trust after they pass away. This can be used to detect any missed assets which can be put in the trust.
What Are the Benefits of a Trust Fund?
There are numerous benefits to creating a trust fund, which depends on the type of trust fund as well as the needs of the creator, including:
- In general, a trust fund is private, and only the trustees or beneficiaries know the instructions regarding how the assets will be distributed;
- They can shield the assets of an individual from potential lawsuits as well as probate costs;
- They provide tax benefits from estate taxes with additional provisions added to the individual’s will;
- They are flexible in terms of time, as they can provide for distribution over a period of time. For example, they may provide monthly or yearly allowances for a minor until they reach a specific age;
- Life insurance policies and retirement plans are covered property under trusts but not under wills;
- Trusts can live on indefinitely; and
- Individuals can create the conditions for the trust regarding how to distribute their assets to their family. For example, a grandparent can set up a trust fund for the educational expenses of their grandchildren.
When Do I Need to Contact a Lawyer Regarding Trust Funds?
Yes, it is essential to consult with a trust lawyer for any issues, questions, or concerns you may have related to a trust fund. If you are considering creating a trust fund, your lawyer can advise you regarding the trust laws in your state as well as what property can be placed in your trust.
If the property is not properly placed in the trust, it will not be useful for your beneficiaries. Distributing assets and knowing how to raise funds for your trust may be complex issues.
Your lawyer can provide you with advice regarding how to create a valid trust fund and ensure your wishes are carried out. Your lawyer can also assist you with creating a comprehensive estate plan, which is beneficial to you and your loved ones.
