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A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also referred to as a Grantor, Trustor, or Maker, who transfers property to a Trustee. The Trustee holds that property for the beneficiaries designated by the Settlor in the trust agreement.
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All trusts are broadly divided into two categories – testamentary and living trusts. A testamentary trust is one that does not become active until the death of the Settlor and which is typically triggered by a provision in the Settlor’s Last Will and Testament. A living trust, also referred to as an “inter vivos” trust, activates during the lifetime of the Settlor when all formalities of creation are complete, and the trust is funded.
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Living trusts can be further divided into revocable and irrevocable living trusts. As the names imply, a revocable living trust can be modified, revoked, or terminated by the Settlor at any time and for any reason whereas an irrevocable living trust cannot be modified, revoked, or terminated by the Settlor after the trust becomes active.
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The Trustee is responsible for administering the trust and managing the trust assets. Some of the specific duties and responsibilities of a Trustee include:
- Following all trust terms (unless they are illegal, impossible, or unconscionable).
- Communicating with beneficiaries.
- Investing trust assets using the “prudent investor” standard.
- Managing trust assets.
- Distributing trust assets.
- Keeping trust records.
- Preparing and filing trust taxes.
- Defending the trust if litigation occurs.
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Your Trustee should have experience in the legal and/or financial field because many of the Trustee duties require at least a basic understanding of law and finance. Instead of simply appointing someone you “trust” as your Trustee, appoint someone who can administer the trust efficiently and economically. You may even wish to consider appointing a professional Trustee.
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A trust can help achieve a wide range of estate planning goals; however, some of the more common uses for a trust include:
- Avoiding probate
- Incapacity planning
- Special Needs Planning
- Asset protection
- Medicaid planning
- Planning for parents with minor children
- Pet planning
- Blended Family Planning
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A trust agreement is the legal document used to create a trust. Within the trust agreement are the terms, created by the Settlor, that dictate how the trust will operate. Trust administration refers to the Trustee’s job of overseeing the terms of the trust in action. Generally, the more complex and/or valuable the trust assets are, the more time consuming and complicated it is to administer the trust.
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It can be tempting to use a fill-in-the-blank legal form found on the internet to create a trust; however, doing so may cause far more problems than it solves. Without the advice of an experienced estate planning attorney during the drafting of your trust agreement, the likelihood of you ending up with an agreement full of errors and omissions increases considerably. Even a relatively minor mistake in a trust agreement can lead to a complete failure of the entire agreement and may put the trust assets at risk.
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A Last Will and Testament typically serves as the foundation of an initial estate plan. At some point, however, you may wish to consider switching to a trust as your primary asset distribution method. If your estate is small enough to qualify for small estate administration, and you do not have minor children (nor plan to have any soon), a simple Will may be all you really need. If, however, your estate is large enough that probate avoidance is a consideration and/or you do have minor children who will inherit from your estate, you may wish to consider relying on a living trust as your primary distribution tool within your estate plan. Consult with your estate planning attorney to help you decide what works best for your plan.
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Contact Us
If you have additional questions about trusts, or you wish to discuss the inclusion of a trust into your estate plan, contact the experienced California trust attorneys at Schomer Law Group APC by calling (310) 337-7696 to schedule an appointment.
