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Living Trusts

Estate planning: Is a trust beneficial?

A trust divides ownership of property into two pieces. One person, the trustee, holds the legal aspects of ownership and may control and take responsibility for the property. Another person, the beneficiary, holds the sole right to enjoyment of the property. Trustee (or the holding of a Trusteeship) is a legal term, which in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another. Although the strictest sense of the term is the holder of property on behalf of a beneficiary, the more expansive sense encompasses persons who serve, for example, on the Board of Trustees for an institution that operates for the benefit of the general public. A trust can be set up either to benefit particular persons, or for any charitable purpose (but not generally for non-charitable purposes): typical examples are a will trust for the testator’s children and family, a pension trust (to confer benefits on employees and their families), and a charitable trust. In all cases, the trustee may be a person or company, whether or not they are a prospective beneficiary.

 

Trustees have certain duties (some of which are fiduciary). These include the duty to:


  • Carry out the expressed terms of the trust instrument
  • Defend the trust
  • Prudently invest trust assets
  • Be impartial among beneficiaries
  • Account for actions and keep beneficiaries informed
  • Be loyal
  • Not delegate
  • Not profit
  • Not be in a conflict of interest position
  • Administer in the best interest of the beneficiaries

 

The terms of instrument that creates the trust may narrow or expand these duties—but in most instances they cannot be eliminated completely. Corporate trustees, typically trust departments at large banks, often have very narrow duties, limited to those the trust indenture explicitly defines.

 

A trustee carries the fiduciary responsibility and liability to use the trust assets according to the provisions of the trust instrument (and often regardless of their own or the beneficiaries' wishes). The trustee may find himself liable to claimants, prospective beneficiaries, or third parties. In the event that a trustee incurs a liability (for example, in litigation, or for taxes, or under the terms of a lease) in excess of the trust property they hold, they may find themselves personally liable for the excess.

 

Trustees are generally held to a "prudent person" standard in regard to meeting their fiduciary responsibilities, though investment, legal, and other professionals can be held to a higher standard commensurate with their higher expertise. Trustees can be paid for their time and trouble in performing their duties only if the trust specifically provides for payment. It is common for lawyers to draft will trusts so as to permit such payment, and to take office accordingly: this may be an unnecessary expense for small estates.

 

One caveat: Assets you want protected by the trust must be retitled in the name of the trust. Anything that is not so titled when you die will have to be probated and may not go to the heir you intended but to one the probate court chooses. For a trust in which you want to put the majority of your assets -- known as a revocable living trust -- you also have to have a "pour-over will" to cover any of your holdings that might be outside of your trust if you die unexpectedly. A pour-over will essentially directs that any assets outside of the trust at the time of your death be put into it so they can go to the heirs you choose.

 

Trusts have the following advantages over wills:

 

  • Trusts can take effect immediately, and therefore can handle a number of circumstances during your lifetime that wills cannot. For instance, if you are seriously injured, a trustee may take over your finances until you are able to assume responsibility again.
  • Assets that pass through trusts are generally not subject to probate proceedings; unnecessary delay, expense, and publicity can thus be avoided.
  • One can usually change a trust without the formalities required for altering a will.
  • Under certain circumstances, one can use trusts to obtain favorable tax treatment.

 

Trusts also have some disadvantages:

 

  • Trusts are often more complicated to draft than a will. A poorly drafted trust can be nearly impossible to execute.
  • To put your assets into a trust, you must make sure you change the legal name on the account to the trust's name. Failing to do so may negate many of the benefits of having the trust.
  • Appointing a guardian is traditionally done in a will. While there may be no legal requirement that a will be used to name a guardian, courts in your jurisdiction may be more comfortable with seeing the appointment in a will.
  • Many professionals charge more in upfront fees to draft a trust.

 

Unfortunately, it may not always be easy to determine when a trust is better than a will. Only by taking a hard look at all of the factors that affect you and your finances can you make an informed choice about which will help you more. No matter what you decide, remember that understanding your estate plan is essential to making sure that you will achieve your goals.

 

Attorney Brendan M. Kelly has been helping diverse clients to address estate planning needs and those in crisis. He will keep you up to date and provide the resources and options you need to meet your needs. Brendan to works for you by staying up to date on the resources and options available to assist Clients and will help you to meet all your needs.

 

Please note some of the information has been taken from Wikimedia projects http://wikimediafoundation.org/wiki/Home.