Most people have heard about trust funds, but only a few understand their proper functionality. It is a versatile legal tool and serves as a critical part of your estate plan. Whether you want to ensure that your loved ones are well cared for after you pass away or you want to manage your personal finances, a trust can help.
Hiring a professional legal solutions law firm to get legal & general financial advice. This article answers some basic questions people usually have about setting up trusts:
What Law Governs Trusts?
Trusts have a long history. Different types of trusts have developed over the centuries, each designed to solve a unique problem. Most of these laws governing trusts exist at the state level. Hence, you can hire a trust attorney or a local estate planning to set up your trust. You may encounter some vital federal regulations depending on your financial situation and goals.
Even though trust laws vary from state to state, consistency has been attained through the Uniform Trust Code. This is a model statute designed to standardize trust laws in overall the country. More than half of the states have adopted some version of this model.
Basic Principles: What is a Trust?
Every trust has some basic features, which are discussed below:
The Characters Involved In a Trust
Every trust essentially involves three parties in an agreement; the grantor (sometimes may refer to as trustor or settler), the trustee, and the beneficiary. The primary responsibility of every trust is to transfer the assets and property of the grantor to the beneficiaries. The grantor creates the trust, a trustee manages it, and the beneficiaries get the benefits. These roles can overlap depending on the type of trust you are dealing with.
An Agreement
The grantor creates the trust under a document known as a “trust agreement.” This legal document includes information such as the names of trustees & beneficiaries and the trust’s purpose. It also identifies and transfers assets into the trust and prescribes any special rules. If the primary cannot fulfill their duties or chooses not to fulfill them, it may prescribe any successor trustee.
The Trustee's Fiduciary Duty
A trustee can be an individual, a board of members, or an institution. Technically, a trust owns the assets, but they do so as a fiduciary for the trust beneficiaries. This means that the trust has all the rights to manage and productively utilize the grantor's assets to benefit the beneficiaries. A breach of the fiduciary agreement can lead to serious legal consequences.
Type of the Trust Agreement: Revocable vs. Irrevocable Trusts
Broadly, there are two types of trust agreements; revocable and irrevocable. In a revocable trust, the grantor has the power to alter the agreement. While in an irrevocable trust, a grantor can not change any of the agreement’s clauses without the trust’s consent. Depending on the grantor’s underlying goals, each category has a set of advantages and disadvantages.
Timing: Living vs. Testamentary Trusts
Trust that comes into action during the life of grantors is called living trust. They are also known as inter Vivos trusts. The name of these trusts depicts their nature. In contrast, testamentary trusts come into being after the grantor's death.
Purpose of a Trust
Different types of trusts have different goals. Some common purposes are discussed below:
Asset Management
Trusts are the best option if you are not confident enough to manage your assets yourself. For instance, for some people, it is really difficult to look after their large estates. So the trusts offer the services to manage and increase the value of your property because they are more experienced and professional to do it for you.
Asset Protection
With a trust, you can transfer the ownership of the property while preserving some special controls on the instructions of the trust agreement. By transferring the ownership right to trust, you are saved from people having bad intentions for your property.
Avoiding Probate
By involving in a trust agreement, you avoid probate. Probate is the court-supervised process of validating a will and distributing the property if someone passes away. Depending on the estate’s size and value, the process can be long and expensive sometimes.
Protecting Beneficiaries
Giving ownership rights to the trust allow them to protect and take care of the property on behalf of the beneficiaries. Minor children, aged parents, and vulnerable family members fall into this category.
Protecting Privacy
Grantors and beneficiaries enjoy the benefits of privacy and anonymity. For instance, real estate is listed in public records under the owner’s name. This allows grantors and beneficiaries to keep a low profile.
Ending Notes
Setting up trust is useful in many ways. Also, it provides many benefits to the grantor and beneficiaries. The article above talked about the fundamentals of setting up trust. If you have any queries regarding setting up a trust or estate planning consultation, feel free to contact us.
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