Save legal fees by learning Basic Trusts Terminology
Purposes of trusts
Trusts are used to hold money and property for specific periods of time, and to pay out the money and property according to detailed written instructions. Trusts are used to safe-keep money and property and prevent it from being paid outright to your heirs at age eighteen (18).
Trusts are used to save estate taxes by “generation skipping.” Trusts are used to keep an heir from having the responsibility of handling money and property that he may be unwilling to handle, or that he is not experienced enough to handle. Trusts can also be used to benefit charities by causing money to be paid out over a period of time, rather than all at once. Trusts of certain types can be used for asset protection to keep creditors of the Trustors and/or of the Beneficiaries from reaching the money and property in the trust. Trusts can be used to save estate and income taxes.
Creation of trusts
A trust is created by a written document known as a declaration of trust, and is then funded by transfer of money into trust bank accounts and/or deeding or transferring of properties to the trust. The creator of the trust is known as the “Trustor” or the “Settlor.” Trusts can be and usually are custom tailored to meet the specific needs and desires of the Settlor. Trusts are usually prepared by attorneys because each trust is custom for the situation and there are many types of trust.
The persons who are to receive money and property out of the trust are known as the “Beneficiaries”. In many types of trusts, the Trustor may also be a Beneficiary as in a living trust created to avoid probate.
The person or institution that takes care of the money and property of the trust is the trustee. The trustee is bound by law to follow the directions contained in the declaration of trust. The Trustor may also serve as the Trustee in some situations.
Effective date of the trust
A trust can be effective at any time you choose. If it becomes effective during your lifetime, it is known as a “living trust” or an “intervivos trust.” If the trust is effective only up-on your death, it is generally part of your will and is known as a “testamentary trust.”
A living trust is typically made to be revocable during the lifetime of one or both of the Trustors and thus the Trustors can pull out money and property during their lifetime. A living trust can also be made permanent, i.e. irrevocable. If irrevocable, money and property cannot be removed and must stay in the trust for as long as specified in the declaration of trust. A testamentary trust is, by definition, irrevocable, since it is not effective until your death.
Save legal fees by learning basic trusts terminology before the first lawyer meeting. Typically, people meet with a lawyer to discuss what types of trust might be needed for their situation. The first lawyer meet-ing can be a lot more productive if the basic term “trustor”, “settlor”, “trustee” and “beneficiary” are under-stood beforehand.