Ultimate Guide to Trusts

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What Is a Trust?

A trust is an estate-planning tool that is essentially a relationship created at the direction of an individual, called the trustor or settlor. The trust directs one or more people, called the trustee(s), to hold the trustor’s property subject to certain duties to use and protect it for the benefit of other people, who are known as the beneficiaries.

It can be created for a wide array of reasons, such as the financial benefit of the person who created the trust, financial support for a surviving spouse or minor children, or for a charitable purpose.    

Different Kinds of Trusts

There are several different types of trusts. However, all of these fall under two categories: living and testamentary. A living, or inter-vivos, trust begins during the life of the trustor. A testamentary trust transfers property into the trust only after the death of the trustor through a will. For a testamentary trust, the trust property must go through probate prior to creation of the trust.


Requirements for a Valid Trust

The process of creating a trust is relatively simple. However, the following requirements must be satisfied in order for the trust to be valid:

What Can Be Placed in a Trust?

As stated above, an important element of a trust is that the trust contains assets. It is important to note that if the asset has a title, such as a piece of real estate or stocks and bonds, the title of the asset be transferred in the name of the trust. When it comes to personal property, such as jewelry, clothing, and furniture, these items do not have title. However, these items can also be transferred to the trust by transferring your rights to the property to the trustee to be held for the benefit of the named beneficiaries in the trust.

For items such as life insurance policies, retirement accounts, pension plans, and health savings accounts, these items cannot be transferred to the trust as the distribution of these items are determined by the beneficiary named in the individual policies. Therefore, the named beneficiary listed for these policies must be the trustee in order for the assets coming from these items to be placed in trust.

Who Is Considered a Valid Beneficiary?

Anyone can be a beneficiary of a trust, so long as they are properly named as a beneficiary in the trust document. Most people list their spouses, children, grandchildren, and friends as beneficiaries. However, pets, co-workers, strangers, or employees may also be beneficiaries, depending on the trust itself. The beneficiaries of a trust must be definite and certain. This means they must be ascertainable at the time the trust is created. The description provided of a beneficiary must be specific enough for the court to determine who they are with specificity.

What Is a Successor Trustee?

In most living trusts, a settlor will name themselves as the trustee of the trust during his lifetime. However, a successor trustee should be named in the event the settlor becomes incapacitated or dies. The successor trustee must act in the same manner as the original trustee and possesses the same fiduciary duty to act in the best interests of the beneficiaries. 

What Is a Pour-Over Will?

Many people neglect to transfer some property into their trust before they die. A pour-over will is a specific type of will used in conjunction with a trust to correct this particular problem. The will is called a pour-over will because it “pours” over the property that the deceased owned at the time of their death into the trust they set up.

Therefore, in the event the deceased passes away before transferring all their property into their trust, a pour over will ensures that all property is transferred into the trust. A pour-over will prevents the property outside of the trust from having to go through probate, an element that the trustor was attempting to avoid when they created their trust. 

Getting Help with a Trust

Regardless of whether you have a small or large estate, it is important to contact an estate attorney when planning out how you want your estate to be distributed. The potential tax implications and legal formalities relating to the validity of a will and trust are essential elements to ensuring that your estate is protected. A lawyer can explain to you the best avenues to take to protect your assets for the best interest of your beneficiaries and family.

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Last Modified: 09-21-2015 02:25 PM PDT

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