The Family Trust
A trust is the right of a person or group of people to legally act for the property to which another person holds legal title. The person who benefits is the beneficiary. Sometimes the beneficiary and the settlor are the same, although it is possible the beneficiary could be a third party.
Most people consider the use of trust for the their estate plan. The challenge for all of us is what type of trust and why do I need it. Here are some basics to consider when dealing with asset protection and wealth transfer.
The term Family Trust usually refers to a living trust, RLT or revocable living trust. The RLT is a legal document that speaks to how your assets are handled and potentially moved to the next generation. If set up property, the RLT should help provide easy movement of assets to the next generation and help those trust assets to avoid probate. Many people do not realize these RLT trust assets can be changed, moved, put in or taken out at any time prior to death. There are serveral advantages to using an RLT however it does not offer much asset protection.
The term Discretionary Trust can also be interchangeable with name Family Trust. This is a trust in which the settlor (or property holder) has delegated discretion to a trustee (or person with legal authority to act) to decide how much and when income from the trust can be distributed to the beneficiary. A support trust may limit distribution by setting guidelines when it creates an operating agreement, but a Family Trust will generally give almost all discretion to a family member.
This type of trust is can be set up to run a family office and hold a family’s interests. A trust works because the settlors believe in the motives of the trustee. Often these trusts are established for asset protection, estate planning and/or tax planning.
A trust is the right, enforceable solely in equity, to the beneficial enjoyment of property of which another holds the legal title.
A trust is a legal relationship in which one person (or qualified trust company) ( trustee ) holds property for the benefit of another (beneficiary). The property can be any kind of real or personal property--money, real estate, stocks, bonds, collections, business interests, personal possessions and automobiles. It is often established by one person for the benefit of himself or of another. ??A trust is a fictitious legal entity (not a bricks and mortar entity) that owns assets for the benefit of a third person (beneficiary). It is common to put whole bank and brokerage accounts, as well as homes and other real estate, into a trust.
A trust is a relationship in which a person, called a trustor, transfers something of value, called an asset, to another person, called a trustee. The trustee then manages and controls this asset for the benefit of a third person, called a beneficiary. An asset is any kind of property.
You will find many definitions in different states or different law books. The above meanings all mean the same thing.
How does a Trust work?
Generally a Trust involves at least three people: the grantor (the person who creates the trust, also known as the settlor or donor ), the trustee (who holds and manages the property for the benefit of the grantor and others), and one or more beneficiaries (who are entitled to the benefits).
The Grantor (or settlor) of the Trust is the person who set up and gave money to the Trust. The Trustee of the Trust is the person charged with keeping the assets safe, invested properly, and finally distributed to the Beneficiary at the proper time. The Grantor can decide how the money must be kept (in interest bearing accounts, in real estate, or only in government insured FDIC accounts, etc.), and when it may be distributed. The Grantor of the Trust can also be the Trustee of the Trust, if the Grantor decides to set the Trust up in such a manner (e.g., Grantor sets himself up to be the Trustee of a Trust for his child).
How is a Trust used?
What are the uses of a trust? Trusts have several uses and they can be of much benefit when properly set up and managed. One of the uses of a trust is to provide flexible control of assets for the benefit of minor children. A trust set up for the benefit of minor children can avoid the necessity of further legal proceedings, such as the appointment of a conservator. A conservator is someone who is appointed by the court to control the assets of minor children. Conservators are restricted by law and must be bonded and file annual accountings with the probate court.
One purpose of creating a trust for a child is to assure the trustor that the child will be benefited but will not have control of the trust assets until the child is older. In establishing a trust, the trustor selects a trustee and specifically instructs the trustee on how the assets will be used for the beneficiary. A trust for the benefit of minors often takes effect when both parents have died. It is usually set up to provide for the support, care and education of the children until they have reached the age set by their parents to actually receive the assets being held by the trustee.
Putting property in trust transfers it from your personal ownership to the trustee who holds the property for you. The trustee has legal title to the trust property. For most purposes, the law looks at these assets as if they were now owned by the trustee. For example, many trusts have separate taxpayer identification numbers. But trustees are not the full owners of the property. Trustees have a legal duty to use the property as provided in the trust agreement and permitted by law. The beneficiaries retain what is known as equitable title, the right to benefit from the property as specified in the trust.
The donor may retain control of the property. Putting assets "in" a trust does not mean that they change location. Think of a trust, instead, as an imaginary container. It is not a geographical place that protects your car, but a form of ownership that holds it for your benefit. On your car title, the owner blank would simply read "The Mr. Jones Trust."
After your trust comes into being, your assets will probably still be in the same place they were before you set it up--the car in the garage, the money in the bank, the land where it always was--but it will have a different owner: the Mr. Jones Trust, not Mr. Jones.
ASSET PROTECTION EDUCATION
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- Umbrella Insurance Policy
- Choosing An Asset Protection Advisor
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- Types Of Trusts QTIP
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- Dynasty Trust The Basics
- Asset Protection Key Concepts
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- Transfer Assets To Your Spouse
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