Trust Basics Articles
A “trust” is a creature of law in which one party- called the “trustee”- has legal ownership of property transferred to him by the person making the trust Usually called the “grantor”). The trust assets are invested and/or managed for the benefit of one or more beneficiaries. Sometimes the grantor can also be a beneficiary of the trust, but can’t be the only beneficiary.
Trusts can be “living”- established during the grantor’s lifetime- or “testamentary”- established in a will.
Trusts that can be terminated or modified at any time by the grantor for any reason are called “revocable.” If a trust is called “irrevocable”, it can’t be changed or terminated under any circumstances.
In order to function, a trust must have assets formally transferred to the trustee, with this title used in the documents of ownership. Even when husband and wife serve as their own trustees, real estate deeds and financial accounts must be re-titled in order to be owned by the trust.
Testamentary trusts require that the will be probated. Plus these trusts might then be accountable and have to report back to the court, unlike living trusts. These are significant drawbacks, without iffsetting advantages. Yet many people choose the t estamentary trust, perhaps because it is more familiary and it’s not necessary to transfer title to property at the present moment.
Trustees
Either an individual or an insitution, such as a bank, can serve as the trustee of a trust. A family member or trusted friend is often chosen because of their personal interst in the trust assets and beneficiary.
A professional trustee such as bank has the experience and resources not available to most individual trustees. Although an institutional trustee usually charges a fee for managing the trust assets, they aren’t affected by family squabbles, pressures and conflicts that may occur when a family member serves as a trustee.
You should choose a trustee based on:
- Your needs
- The needs of your trust beneficiaries
- The reliability and other strengths of potential candidates
- The relative complexity of the assets the trustee will be managing
Community Property Considerations
If you live in a community property state, and use community property to fund a living trust, the trust becomes the owner of the property, and it’s no longer considered “community” property. The property should be clearly identified as having been community property, and the trust documents should state that the property will revert to its community character of the trust is revoked. Otherwise, the character of the property might become unclear (which could have divorce and tax implications).
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