Often clients tell me that they want a trust and immediately thereafter admit they really are not sure what a trust is or if they need one. They wonder if it is like a corporation or a contract or a Will? There are all different types of trusts but when the question comes up like this, typically people are asking about “revocable trusts” also known as “living trusts.”
A revocable trust is a little like a Will and also like a contract or an agreement. However, you still need a separate Will when you establish this type of trust. They work together. Ultimately, a trust is a vehicle to hold your assets and provide for you while you are alive and then distribute your assets according to your instructions after your death.
The elements you need to make a trust are:
1) Intent to make a trust.
2) Mental Capacity to make a trust (over 18 and a competent adult).
3) A trust must have some type of assets or property. The legal word for that is “corpus.”
4) There must be a legal purpose to trust.
5) A trust must have a beneficiary or beneficiaries.
6) Generally speaking, a trust has to be in writing.
WHO ARE THE PLAYERS
Settlor or Grantor: These mean the same thing and this is the person who establishes the trust.
Trustee: This is the person who manages the assets in the trust. Often times the Grantor is the initial trustee but not always.
Beneficiary: The person or persons who receive property from the trust. Typically, this includes the Grantor who benefits from the trust during his or her lifetime.
Introduction of the above people is first. Then we typically name the trust.
Next is a paragraph about how the trust is for the benefit of the Grantor while he, she or they are alive. Remember the Grantor may be alive but incapacitated and thus the trust agreement has to have language instructing the trustee to take care of the Grantor while they are alive.
Next is the section that describes what happens after the Grantor dies. This is generally the most customized section of a trust. This section can set up subtrusts for children and grandchildren, special needs trusts for disabled beneficiaries, list specific gifts or conditions of gifts and all the other details of who gets what.
Next is another important section… who will be the Trustee of the trust. It is so important that this person be trustworthy. You may have a family member you love very much but you also know are not good with money and do not do a good job managing their own money so do not choose those persons to manage your money! Choosing the correct trustee should be the subject of a very detailed conversation. The trustee section includes provisions about whether your trustee should be bonded, who they have to account to and whether they should be paid.
Next is the trustee’s Powers section. Usually you want your trustee to have broad power and discretion and that’s where these powers come into play. If you don’t want your trustee to have broad powers maybe you need to pick a different trustee or at the very least, be very specific about their powers and whether or not you want someone else to be able to check behind them—someone called a “trust protector.”
The power to amend or revoke the trust is included in all revocable trusts. That is, the Grantor might want to change their trust and thus they need to be given the power to do so.
General provisions and definitions are included. Spendthrift clause, payment of taxes, holding of life insurance, and more is included here.
The qualified sub-chapter S clause is next. This is included this for anybody who might own a business that is incorporated in this way.
The end of the trust typically contains a list or schedule of the property of the trust. This does not mean those assets are in (or funded in) the trust. In order for assets to be placed in the trust, and therefore be owned by your trust, you or your attorney need to contact each financial institution or other holder of assets and actually transfer the property to the trust. This is a very important step.
It is very important in establishing any trust that you make sure the trust is set up properly and funded properly. The estate attorneys at Black, Slaughter & Black, P.A. can assist you in establishing a living trust or any other type of trust that might benefit you and your family.