Posted: July 5, 2016

What is a Trust?


          A common question I receive when working with parents is “What exactly is a trust?”  A trust is a legal instrument that is created to protect and preserve your property, and in most cases to delay its distribution.  I like to use the analogy of a “chest” to describe the (4) key parts of a trust instrument: (1) Creator (settlor), (2) property, (3) trustee, and (4) beneficiary.   As the parent you are the settlor--the creator and depositor of the property into the “chest” (the trust instrument).  The person you name as the trustee is the person you give the key; the trustee has the responsibility to open the “chest” to distribute the property to the named beneficiaries.

          Trusts are relatively simple to create and can be created while you are alive (inter vivos) or once you have died (testamentary trust).  As the settlor you have a lot of discretion in creating the trust instrument and deciding what property goes into the “chest” and how and when the property goes out of the “chest”.  Additionally, you get to name the trustee and the beneficiaries of the trust.

            Now, young parents may not have a lot to put in the “chest” when they first draft a will, but hopefully they will live a long and profitable life and be able to fill the “chest.”  For young parents the most common form of a trust is the testamentary trust.  A testamentary trust is an trust that is created at the death of the settlor. A common place to create the testamentary trust is in the Last Will and Testament of the settlor.  The property you place into the trust instrument can include personal property, income property, stocks, cash, vehicles, and even firearms.

 

            Once you have decided what to include in your trust, you must name a trustee.  The trustee has a fiduciary duty to the beneficiaries of the trust.  This means he is in charge of making sure the property in the trust is maintained and that the stipulations of the trust are followed.  Depending on the terms of the trust, the trustee can open the “chest” to distribute trust property to the beneficiaries.  The trust instrument usually designates where the principal and/or income is distributed to certain beneficiaries.

            The beneficiaries are the people who get the benefit of the trust.  They can either receive the trust as income beneficiaries or can be principal beneficiaries.  Income beneficiaries receive money that is generated by the property in the “chest” – rent, interest, etc.  Principal beneficiaries receive the actual property in the “chest.” 

           As stated earlier this is a brief outline of trust instruments and how they function. Remember that you have a great deal of control in protecting your wealth and assets for your children.  The Donovan Law Firm can help to guide you through the process of creating your trust to ensure that your final wishes regarding your estate are carried out exactly as you desire.   If you have questions or concerns please do not hesitate to contact our office via Facebook, email (mdonovan@donovanlawfirmllc.com) or phone at (985) 259-7633 to schedule a consultation or ask a question.

 

 


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