Trust Law is a legal relationship in which one person transfers property to a second person for the benefit of a third person. The person creating the trust is called the grantor, trustor, or settlor. The person or entity having legal title to the trust property is the trustee, and the person for whose benefit the trust is created is called the beneficiary.
The fundamental legal principle you need to understand about a trust is that one person can have two legal entities: as an individual, and as a trustee. For legal, tax, and other purposes, a trustee is a separate person or entity from the person as an individual. Therefore, an individual person can transfer property from his individual name to himself as Trustee and hold it for himself or for others.
Typically, the Revocable Living Trust Agreement provides that title shall be in the trustee or co- trustees and, upon the death of the grantor, shall go to the designated beneficiary or beneficiaries. When the grantor dies, the property is automatically held by the co-trustee or successor trustee for the beneficiaries without any probate process or court proceedings. This might sound like a bit of legal magic. Indeed, that is exactly what it is: it is an accepted legal fiction to accomplish a noble and worthwhile goal. It avoids probate just as slick as magic.
What Is Trust Law; What Are The Elements of Trust?
The four essential elements of a trust are: intention, trust property, trustee, and beneficiary. It is important for you to under- stand the meaning of these terms in order for you to create your own trust. Intention. A trust is created only if the grantor properly expresses an intention to create a trust. Generally, a trust can be created by written instrument, by verbal statement, or by con- duct. The Statute of Frauds and Statute of Wills require that some transactions be in writing to be enforceable. When the transaction is only oral, the evidence is required to be clear and convincing. No particular form of written words or conduct is necessary. Even though many oral agreements are legal, it is recommended that you always manifest your intentions by a written document, especially in the case of a trust arrangement.
A trust cannot be created unless there is trust property that definitely exists. Any transferable interest, present or future, vested or contingent, legal or equitable, in any object of ownership, tangible or intangible, may be held in trust. This definition would include virtually any kind of property you own. Trustee. A trust by its very nature requires that there be a trustee to administer it. If, however, you place property in a trust without naming a trustee, or the trustee dies, a court would appoint a trustee to administer the trust. You should be specific in naming a trustee and successor trustees to avoid the unnecessary costs of a court appointment.
As a general rule, any natural person, including the grantor, can hold property in trust in the same way that a person can hold property for his own benefit. Moreover, other entities may act as trustees, such as a bank, a trust company, or a corporation. Where a major objective of a trust is to avoid probate and the excessive fees associated with probate systems, you might wish to avoid naming an attorney, a bank, or a trust company because the fees they charge are an integral part of the probate system. A property owner may declare himself to be the trustee of property for the benefit of another. In this situation, the property owner is both grantor and trustee. The selection of a trustee other than yourself can be one of the most important aspects of creating a trust. Most people select a close family member, a friend, or a relative.
Under the typical Revocable Living Trust Agreement, the only duty of a successor trustee is to convey the trust property to the beneficiaries. If management of a business or other investments are involved, you might wish to consider a person with business experience.
A private trust, unlike charitable or honorary trusts, requires a beneficiary with the right to enforce it. The beneficiary must either be specifically named or be reasonably ascertained from facts existing at the time the trust is created. Any person, natural or corporate, who has the capacity to take and hold title to property may be a beneficiary, even though that person might not be capable of administering the property. Indeed, the inability of a beneficiary to manage his own property, as in the case of a minor child, is often a principal reason for creating a trust.
METHODS OF CREATING A TRUST.
You can create a trust in several ways: By declaring that you hold your property as trustee for yourself and/or others By transferring your property to another person as trustee for yourself and/or others • By transferring, in your will, your property to another person as trustee for others. The third method —by will — is called a testamentary trust, and must go through the probate process. You should always use a formal written document when you are creating a trust to avoid any confusion or misunderstanding, and you should not use a testamentary trust if you wish to avoid probate.
The advantages of the revocable living trust include the following:
- Avoiding probate administration fees and expenses.
- Avoiding excessive legal fees for probate.
- Avoiding unnecessary delays.
- Avoiding publicity of probate matters.
- Avoiding ancillary administration.
- Avoiding statutory restrictions on bequest of property.
- Avoiding will contests.