Like most topics in the legal world, “trusts” is a large topic. Different trusts are used in different situations to accomplish different objectives. But some general concepts apply to all types of trusts.
Part of my job as your estate planning attorney is making you comfortable with the way your estate plan works. I want you to know what all of the documents are, and what they do. And I want you to be comfortable with the terminology.
Trusts are almost always discussed, at least a little bit, in our first meeting. Unless you have done an estate plan before, or perhaps have experience with someone else’s estate plan, trusts may be a foreign concept. There are a zillion different types of trusts, and each one is different. In estate planning, the most common trust is a living revocable trust.
So, let’s see if we can shine some light on trusts. First, some terminology:
Trust
• A trust is a legal entity that can control money and property that are for the use and enjoyment of someone else. A trust is created by a written document that contains all of the rules of the trust.
Trustee
• The Trustee has legal control over the trust assets. They have a duty, called a fiduciary duty, to do what is in the best interests of the beneficiaries.
Grantor
• The Grantor is the person who transfers property to the trust, usually the one who originally sets it up. They can also be called the Settlor.
Beneficiary
• This is the person (or institution) who gets the use and enjoyment of the trust’s money and property
Those are some pretty abstract concepts. I understand better with examples, so let’s try a couple.
Think about a trust as a piggy bank. The piggy bank is the trust – that’s where the money is. When Mom puts Daughter’s allowance in the piggy bank, Mom is the Grantor. She is giving “control” of the money to the piggy bank. But the allowance is for the benefit of Daughter. Daughter is the Beneficiary.
A living revocable trust is a little different. When Mom puts money in this kind of piggy bank, it’s still Mom’s. And Mom decides where the piggy bank and the money stay – maybe on a shelf that only Mom can reach. If Mom wants to spend the money, she can take it out of the piggy bank and do whatever she wants with it. After Mom dies, whatever is in the piggy bank goes to Daughter.
A critical role in a trust belongs to the Trustee. The Trustee is whoever the Trust says is in control of the money and property in the trust. The Trustee can sell property, buy property, invest money, spend money according to the rules of the trust; usually, the Trustee can do whatever they think is best with the money and property – as long as they follow the rules written in the trust.
Think about the usher who passes the collection plate at church. The collection plate is the trust. When it comes to you (you’re the Grantor), you can put in whatever you want. Before you let go of the plate, you can change your mind and take your money out, spend it, give it to someone else, whatever you decide. Until you let go of the plate, you are in control of it. You are the Trustee. Once you pass the plate to the usher, then the usher is in control – they become the Trustee. When the usher gets the plate, that doesn’t mean he or she can take whatever they want out of the collection plate and stuff it in their pockets. The Trustee is responsible for following the rules of the trust – pass it across the aisle, take it to the altar, whatever the instructions are – and he or she is strictly accountable for what happens to the collection plate and the money in it while it is in their hands. They have a duty to follow the instructions.
I hope this helps clear up some of the concepts involved in trusts and makes you more comfortable with the idea. You don’t have to be super rich to need a trust, and you don’t have to be super rich to get one. Talk to an attorney you trust about your situation, and don’t be afraid to ask questions. Knowledge is empowering.
Find Margaret:
-
