A trust is a legal arrangement in which a property interest is held by one person (the “trustee”) at the request of another person (the “settlor”) for the benefit of a third person (the “beneficiary”). The trustee is required to administer the property for the benefit of the beneficiary.
Trusts are a highly innovative estate planning tool that can be used in a variety of different contexts. They are one of the most widely used estate planning tools due to their flexibility and the fact that they do not require most of the old-fashioned formalities often still required to make a will. Trusts can also be useful when it comes to asset protection and tax planning.
What Are the Requirements of a Valid Trust?
A valid trust requires the following elements:
- Intent: The Settlor must have possessed the present intent to immediately create a trust. Language that illustrates a desire or hope that a trust be created in the future violates the intent requirement and does not create a valid trust.
- Assets: A trust requires assets to go in it and, thus, requires a presently existing interest in presently existing property. For example, a trust cannot be comprised of the profits from trading certain stocks. An expectancy is not an asset for the purposes of creating a trust.
- A trustee: The Settlor must designate the person who will hold legal title to the trust property and manage the trust assets. However, if the Settlor fails to designate a beneficiary, the trust will not be invalidated. Instead, a court will appoint a trustee.
- A beneficiary: The Settlor must designate a beneficiary to hold equitable title to the trust and receive the benefits of the trust assets.
Should I Speak with an Attorney?
If you are interested in creating a trust or learning more about different estate planning tools, an estate planning lawyer can explain the trust requirements in more detail, tell you more about the different types of trusts, help you decide on the best estate planning method for you and your family or business, and help craft a trust that best serves your wishes.