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Trusts Simplified

By John Dietz - Email Editor

Date: 28-Feb-2006

The basic concept of a Trust is really quite simple. Essentially, someone gives something to someone else for the benefit of another.

So, how do Trusts work? Let's use a simple allegory to explain what a Trust is and how it works. Today's example involves the U.S. Postal System.

Each time you mail a letter, you're creating a Trust. As the writer of the letter, you will be known as either the creator or, more commonly, the grantor of the Trust. The mail carrier becomes the trustee, while the recipient of your letter is the beneficiary. The trustee is subject to the rules of the Trust, the first of which is found on the letter. These rules are the letter's delivery address and a return address if the mail carrier is unable to complete the terms of the Trust (i.e., deliver the letter to the first addressee.)

There are terms and rules that the mail carrier is already subject to as he takes on the trusteeship of ensuring the delivery of the letter. He is, in fact, not really the trustee, but an agent of the trustee, which is the U.S. Postal Service and, therefore, he is subject to the trustee's rules and judgment.

Anyone attempting to interfere with the letter's delivery (Trust) will find that both the mail carrier and the U.S. Postal Service will protect the letter as if it were their own property. If the letter is stolen, they will hunt the thief down as if the letter was stolen from them personally.

The letter is in the mail carrier's possession and, as such, he assumes responsibility for holding and guarding it and seeing that it is delivered to its final destination. However, the mail carrier is not entitled to the use of it. As a trustee of the Trust, the mail carrier will not even return the letter to the grantor unless he is incapable of delivering it to the addressee. In other words, the mail carrier has a right to hold the letter, but never to use it as a part of his personal or real property. He simply has a legal right to hold that letter in his possession and protect it from anyone who may attempt to take it.

The letter's addressee is the beneficiary of the Trust, and no one has a greater right to the letter than the one to whom it is addressed. The beneficiary may choose either to have the letter delivered into someone else's care, or to appoint someone to receive it on his/her behalf.

If the letter cannot be delivered, then the Trust must be dissolved. This is done by returning the letter to the original sender (i.e., the grantor), but only if his address is on the return address label, which is a part of the original terms of the Trust. If someone else's return address is on the letter, then that person will be the recipient of the letter and not the original grantor.

An important characteristic of a Trust is splitting the lawful title into two parts. Part one is the legal title, while the other part is the equitable title. After mailing the letter, the grantor no longer has either; the U.S. Postal Service does. It is the mail carrier (or his supervisor) who holds what could be considered a legal title to the letter. The mail carrier has no right to the beneficial use of the letter (i.e., reading it), but he has the responsibility of taking care of it and ensuring that it is delivered in tact to the beneficiary. The beneficiary holds the equitable title and, therefore, under law, it is the beneficiary the law considers to be the true owner of the property.

To sum it up, a conversion took place the moment the letter was slipped into the mailbox's slot. Until the letter actually passed into the possession of the U.S. Postal Service, there was no Trust, despite what was said on the envelope or even with the inclusion of the postage stamp. The trustee (the mail carrier) signified his acceptance of the Trust at the point where he postmarked the letter, whereby he accepted and sealed his obligation to fulfill the terms of the Trust.

Hopefully, this small segment of Trust 101 gives you a snippet of information about how Trusts really work. The broader message is that if you have any net worth to speak of, a Trust is one of the tools that you should have in your shed.

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