What is Trusts Law?
Benefits and drawbacks when property is held for the benefit of anotherBy Super Lawyers staff | Reviewed by Canaan Suitt, J.D. | Last updated on January 30, 2023
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An estate plan helps you be confident your family will be taken care of after you die. One element of an estate plan is a trust—either one that transfers property while you’re alive or one that comes into existence after you pass. A trust gives you reassurance that property will be managed according to your wishes, and it can help your loved ones avoid the lengthy and costly court proceedings that can accompany the inheritance process.
This overview will help you understand the basics of creating a trust as well the benefits and drawbacks of this form of estate planning. You can use this information to help you evaluate your options as you consider your assets and how you would like them to be managed when you die.
A trust exists where property is held by one party for the benefit of another. These relationships typically include three people:
- The person making the grant of property (called the grantor, settlor, or trustor depending on the state)
- The person holding the property in trust for beneficiaries (called the trustee), and
- The person benefitting from the trust (beneficiaries of the trust)
A trust can be a standalone grant of property or money that becomes effective immediately. This is called a living trust (or “inter vivos trust”). You can usually specify whether the trust is a revocable trust, which allows you as the testator to change the terms or revoke it at any time, or an irrevocable trust, which doesn’t allow changes.
A trust can also be included in a will as a testamentary trust, which will be created upon the death of the testator. There are different types of trusts for different types of property and purposes—for example, life insurance trusts, real estate trusts, spendthrift trusts, asset protection trusts, and charitable remainder trusts.
Note also that trusts can be classified as either express trusts or trusts imposed by law. Express trusts are what we usually mean when we talk about trusts—they are intentionally created by individuals for a specific purpose, such as benefiting a person or institution. Trusts that are imposed by courts typically aim to rectify or prevent acts of unjust enrichment, which is when someone improperly comes into possession of trust property. Constructive trusts and resulting trusts are common types of trusts imposed by courts. This article will focus on express trusts, or trusts that you can create for the purpose of benefiting someone.
Creating a Trust
To create a trust, you will transfer legal ownership of property to a person or institution that will manage the property for a period of time for the benefit of a person of your choosing. You can transfer the property to an institution like a bank, a family member, or yourself. That party is then called the trustee. Note that if you make yourself trustee during your lifetime, you will need to appoint a successor trustee to take over control of the trust when you die or become incapacitated.
This transfer creates a fiduciary relationship, which requires the trustee to act in the best interests of the beneficiary. The trustee’s fiduciary duty to use trust assets for the benefit of the beneficiaries exists regardless of whether you make yourself or a third party the trustee, and the beneficiary can hold the trustee legally responsible if there are damages to their interest.
You will also need to decide whether you want to create a testamentary trust or a living trust. A testamentary trust is a trust document usually included in a will and doesn’t come into existence until your death. At that time, the trustee will follow the instructions in your will. You can set the terms of the trust that must be met before the beneficiary receives the trust benefits. You can also set a schedule for payment of benefits.
Benefits and Drawbacks
Living trusts may be able to help your beneficiaries avoid probate, which can help them save time and money because they will not have to go to court for the property to be distributed. This is because the trust assets were transferred when you were still alive and do not count as your remaining assets when you die.
Trusts, however, can be difficult to set up. Not only do they generally cost more money to establish than wills do, but they are also easy to get wrong. If you do not properly transfer the title of your assets during your life, the property will still need to go through probate. This can cost your surviving family members the time and expense you were hoping they would avoid through use of a trust.
Below are some common questions you might want to consider when meeting with an attorney for the first time.
- Who owns the property in a trust?
- Can a trustee withdraw money from a trust?
- What are the pros and cons of a trust?
- How do I create a trust? Can there be a trust without a written document?
- Can trusts help avoid estate taxes?
- How do I appoint a trustee for managing the trust agreement?
- How long does the trustee’s legal title to the assets of the trust last?
Finding the Right Attorney for Your Needs
It is important to approach the right type of attorney—someone who can help you through your entire case. To do so, you can visit the Super Lawyers directory, and use the search box to find a lawyer based on your legal issue or location.
To help you get started, you may want to consider looking for an estate lawyer with experience creating trusts.
Why Should I Talk to a Lawyer?
An experienced lawyer can help you create an estate plan in line with state law so it will be able to stand up to any potential legal scrutiny and successfully avoid the probate process. Your lawyer will help you evaluate what kind of trust is best for you and your assets. Your lawyer will also be able to help your trustee understand their role, and they can provide relevant legal advice so that your wishes are honored. You can even appoint your lawyer as your trustee.
A lawyer will be able to anticipate potential problems with your estate plan and advise you on how to approach them. Your lawyer will also keep track of deadlines and file all the paperwork with the necessary courts and agencies, giving you one less thing to worry about.
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