Legal Ease by
Shane Givens
April 13, 2011
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What is a trust? Not many people understand what a trust is and how it differs from a will. The details of a trust can be complicated and diverse, depending on the individual situation. The general idea behind a trust, however, is pretty simple. According to financial planning experts the first trusts were created as much as 2,000 years ago during the reign of Caesar. It is thought that a Roman citizen wanted to pass on his property to his children in case of his death; however, because his wife was not Roman the children could not legally take the property. So, he created a will, leaving all his property to a Roman friend who promised that he would use the property to take care of the man's children. The Roman citizen trusted his friend to do what he wanted with his property, thus the term “trust.” A modern-day trust works the same way. Creating a trust allows someone to transfer their property, assets, bank accounts, securities, real estate, etc. to someone they trust. This transfer is done through a trust agreement which is usually recorded at the county probate office. Once assets are transferred, they are owned by the trust. The payout terms of the trust are up to the person creating the trust, or the “grantor.” For example, someone could draw up a trust that pays out a certain amount of income to the grantor during his lifetime, with the remainder passing to certain other beneficiaries at death. Although there are many differences with wording and types, there are two basic classifications of trusts – a “living trust” and a “testamentary trust.” The former comes into effect while the grantor is alive. The latter is carried out after death from instructions usually given through a will. Trusts can also be revocable and irrevocable. A revocable trust can be changed, added to, taken from or stopped at any time by the person instating it. An irrevocable trust cannot be altered. One of the most important decisions to make regarding a trust is appointing a “trustee” – the person or entity who will oversee and take care of the trust's assets. The trustee can generally be any person or business entity. The trustee must follow the rules and instructions laid out in the agreement. Some-times, people prefer a business entity to be a trustee (such as a bank or a trust company) because these entities may be better equipped to properly invest assets. The reasons for creating trusts are as varied as the possible terms and conditions that can be placed on them. For example, people create trusts for tax purposes, to make sure a beneficiary is old enough to responsibly handle whatever is in the trust, to protect property from certain entities or to keep property away from certain people. This column is intended for general information purposes only. The answers to most legal problems rely on specific facts of a particular situation; therefore, it is very important to see a lawyer when these situations arise. Please e-mail questions for future columns to givenslaw@tds.net. |