A trust is an estate planning instrument which individuals will create to help them organize their wealth and spending needs. The individual who creates a trust is known as the grantor.
The grantor is the individual who devises all of the rules and guidelines for the trust according to the legal requirements for creating the trust. There are numerous different types of trusts.
Two main, broad categories of trusts include revocable trusts and irrevocable trusts. A revocable trust is a trust which can be altered or revoked after its creation by the grantor during their lifetime. An irrevocable trust, on the other hand, cannot be altered once it is created.
The creation of a trust typically begins with a grantor determining that they wish to place assets in a trust for the benefit of another individual. The individual who receives the benefits of the trust is known as the beneficiary.
An individual known as a trustee is then designated to manage the assets within the trust. This individual can be the same individual as the grantor.
However, their duties under their title are different. In most cases, the grantor will appoint someone else to manage their trust assets.
After this, wealth and assets are moved from the possession of the grantor into the trust in the form of gifts. If there are financial amounts, they are invested based upon the rules of the trust when it was set up.
A trust has recipients and beneficiaries who are designated to receive the property that is in the trust. The grantor is permitted to set guidelines or rules regarding how the beneficiaries are permitted to access the trust. These may include:
- The age of the beneficiary;
- How often; and
- How much money can be withdrawn at one time.
In summary, there are three main categories of individuals necessary for the creation of a trust, including:
- The grantor, or the individual who created the trust and transferred the funds;
- The beneficiary, or the individual who receives the monetary amounts in the trust. It is important to note that there can be more than one beneficiary for a trust; and
- The trustee, or the individual who is tasked with managing the trust fund. In some cases, this may be the same individual as the grantor.
Are There Different Kinds of Trusts?
Yes, there are numerous different kinds of trusts. Each different type of trust has different legal specifications and legal requirements.
What type of trust an individual chooses will depend on several factors, including the desires and needs of the grantor as well as the main purpose for the transfer.
Some common types of trusts are the bypass trust and the special needs trust. A bypass trust is also known as a marital trust or a family trust. This type of trust is generally intended to assist married individuals in managing the expense of estate taxes in the most efficient way possible.
A special needs trust is set up for individuals who are not able to earn their own living due to a disability or other illness. This trust can be used to provide supplemental income without limiting the individual’s ability to obtain government benefits.
A spendthrift trust can be created for an individual whom the grantor believes may not be able to manage their money and may quickly spend it all. A life insurance trust assists beneficiaries with avoiding estate taxes and other costs which life insurance policies typically require.
Living trusts are created so that if the grantor passes away, their assets can pass quickly to their beneficiaries and avoid the lengthy and expensive probate process. A living trust is also called an inter vivos trust.
There are several other types of trusts which include, but are not limited to:
- Charitable trusts, which are are created to help gather funds for use in benefitting a specific charity or for the public good;
- Custodial trusts, which are a type of revocable trust that benefits a beneficary who is incapacitated or who has a disability;
- Discretionary trusts, which are a type of trust that delegates discretion to the trustee to decide when and how to distribute trust assets to the beneficiary or beneficiaries. Typically, a discretionary trust does not set up fixed distributions, but instead provides general guidelines for the trustee;
- Dynasty trusts, which is a trust that skips generations at designated intervals. This type of trust is designed to minimize taxation of large amounts of family wealth as it is passed to following generations;
- Land trusts, which are land ownership arrangements where a trustee holds title to the land. The beneficiary is given the power to:
- direct the trustee;
- manage the property; and
- draw an income from the trust; and
- Testamentary trusts, which is a type of trust that is often included under the terms and conditions established in a will and takes effect when the grantor dies.
Because there are so many different types of trusts, one of the most important steps in creating a trust is to determine which type of trust is needed. In order to determine this, the grantor will have to decide what their desires and needs are in passing their assets on to the beneficiaries.
How Can I Create a Trust?
There are several steps involved in creating a trust. It is best to have the guidance of a trust lawyer, who can assist with determining what the best type of trust is for the situation.
Steps that a grantor will need to take to create a trust include:
- Decide what they want the trust to accomplish;
- Select the type of trust that will accomplish their specific financial goals;
- Designate a trustee, if necessary. Not all trusts require one;
- Select the beneficiary or beneficiaries;
- Discuss the trust guidelines with a lawyer and ensuring that it can manage and transfer assets according to their needs; and
- Have a lawyer draw up the trust in a binding legal document.
If an individual needs to alter or amend their trust due to a change in their wealth or a change in beneficiary, they should consult their attorney. Changing a trust is a complex process which requires proper guidance and oversight.
What Types of Legal Issues are Connected with Creating a Trust?
There are many different legal issues, conflicts, and disputes which may be connected with creating a trust. Although most of the decision making power lies with the grantor, there are other individuals involved who may have issues with the trust arrangement.
Common issues which arise in connection with trust creation include:
- Disputes over who the named beneficiaries are;
- Disputes over the individual who is selected as the trustee and the extent of their fiduciary duties;
- Questions or concerns regarding the type of trust selected; and
- Setting up the trust in a way that violates the law.
Do I Need a Lawyer for Help with Creating a Trust?
It is essential to have the assistance of a trust lawyer if you desire to create a trust. Wills, trust, and estate law is a broad and complex area of law.
Your lawyer can assist you with choosing the correct trust for your needs, ensuring the trust is created in accordance with the law, and drafting any and all documents necessary to create the trust. Having a lawyer create your trust ensures that your property will pass to your loved ones as you desire.