Family Trusts

Family Trusts
So what’s in a name?

Most people consider a Family Trust as catch all for the family estate. While this can be true, the term “family trust” is somewhat ambiguous. Trust are designed and implemented for a myriad of reasons. Some    family trusts are designed to have a trigger mechanism at death. These trust are generally called revocable living trust. Others have gifting benefits while you are alive, still others can offer a combination of asset protection, estate planning, and wealth preservation.

So you can see it not that easy to say what is the name of the trust I need. There are marketing names, trust named after certain provisions within the trust document and still others that are named after a person.

Let’s take a look at some of the basics.

While this not all encompassing, it starts to give a picture a what you may need to do with your situation. It may also be wise to look into our educational module – Basic Estate Planning

A trust is the right, enforceable solely in equity, to the beneficial enjoyment of property of which another holds the legal title.

A trust is a legal relationship in which one person (or qualified trust company) ( trustee ) holds property for the benefit of another (beneficiary). The property can be any kind of real or personal property–money, real estate, stocks, bonds, collections, business interests, personal possessions and automobiles. It is often established by one person for the benefit of himself or of another. A trust is a fictitious legal entity (not a bricks and mortar entity) that owns assets for the benefit of a third person (beneficiary). It is common to put whole bank and brokerage accounts, as well as homes and other real estate, into a trust.

A trust is a relationship in which a person, called a trustor, transfers something of value, called an asset, to another person, called a trustee. The trustee then manages and controls this asset for the benefit of a third person, called a beneficiary. An asset is any kind of property.

You will find many definitions in different states or different law books.

How does a Trust work?

Generally a Trust involves at least three people: the grantor (the person who creates the trust, also known as the settlor or donor ), the trustee (who holds and manages the property for the benefit of the grantor and others), and one or more beneficiaries(who are entitled to the benefits).

The Grantor (or settlor) of the Trust is the person who set up and gave money to the Trust. The Trustee of the Trust is the person charged with keeping the assets safe, invested properly, and finally distributed to the Beneficiary at the proper time. The Grantor can decide how the money must be kept (in interest bearing accounts, in real estate, or only in government insured FDIC accounts, etc.), and when it may be distributed. The Grantor of the Trust can also be the Trustee of the Trust, if the Grantor decides to set the Trust up in such a manner (e.g., Grantor sets himself up to be the Trustee of a Trust for his child).

How is a Trust used?

What are the uses of a trust? Trusts have many uses and they can be of much benefit when properly set up and managed.

Property

Putting property in trust transfers it from your personal ownership to the trustee who holds the property for you. The trustee has legal title to the trust property. For most purposes, the law looks at these assets as if they were now owned by the trustee. For example, many trusts have separate taxpayer identification numbers. But trustees are not the full owners of the property. Trustees have a legal duty to use the property as provided in the trust agreement and permitted by law. The beneficiaries retain what is known as equitable title, the right to benefit from the property as specified in the trust.

Minors

One of the uses of a trust is to provide flexible control of assets for the benefit of minor children. A trust set up for the benefit of minor children can avoid the necessity of further legal proceedings, such as the appointment of a conservator. A conservator is someone who is appointed by the court to control the assets of minor children. Conservators are restricted by law and must be bonded and file annual accountings with the probate court.

Retaining Control

The donor may retain control of the property. Putting assets “in” a trust does not mean that they change location. Think of a trust, instead, as an imaginary container. It is not a geographical place that protects your car, but a form of ownership that holds it for your benefit. On your car title, the owner blank would simply read “The XYZ Trust.”

After your trust comes into being, your assets will probably still be in the same place they were before you set it up–the car in the garage, the money in the bank, the land where it always was–but it will have a different owner: the Mr. XYZ Trust, not you the human.