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Trusts and Trustees

What is a trust?

A trust is a unique legal arrangement which only exists in English speaking countries. Technically, a trust is a relationship in which one person (the “trustee”  holds title to assets, subject to an obligation to manage and distribute those assets for the benefit of one or more other people (the “beneficiaries”). Trusts have been a feature of the English Common Law since the 14th Century. Basically, it’s like establishing a “special account” for someone and appointing a “manager” of the account.

What are some of the uses of trusts?

Modern trusts are useful for several purposes. Then can provide asset management for people who are disabled or are not mature enough to make their own decisions. They can protect assets from claims of a beneficiary’s spouse or creditors and to preserve benefits of public programs such as Medicaid for people with disabilities. Click here to read more about “Special Needs Trusts.

Trusts are also useful in tax planning. For example, “bypass” trusts allow a married couple to take advantage of both of their estate tax exemptions. Irrevocable life insurance trusts let your beneficiaries have the benefit of your life insurance free of estate tax. Qualified personal residence trusts let you pass your house to your children are others in a tax-advantaged way. Click here to read more about trusts in estate tax planning.

What is a “living” trust?

To a great extent, “Living Trust” is more of a marketing slogan than a legal term. Promoters of these trusts advertise that by using one, you will be able to avoid expense and delay in settling your estate. Many of the statements in the “free living trust” seminars are misleading and are intended to scare people into having work done that they don’t need. Click here to read our article: “Exploding the Myths of “Living” Trusts.”

Trusts for children

No one wants to leave significant assets to eighteen or twenty one year old children. A properly designed Work Incentive Trust will encourage children to pursue education and support themselve through suitable employment. Click here to read more about trusts for children.

Choosing a trustee

The trust is managed by a trustee. You may select one or two people or a bank as initial trustee or trustees. You can select a successor in case your initial Trustee can’t serve.

Trustees have several tasks. These include investing the trust assets, maintaining records, filing required tax returns and court accountings. The trustees’ most difficult job, however, is deciding when, and for what purposes, to distribute the trust assets to your beneficiaries in accordance with the “blueprint” that you provide in your will or trust agreement.

When you choose someone to be a trustee, you are, in a sense, hiring an employee. You should not appoint someone merely because of family relationship. A trustee can delegate the investment and accounting functions, but must personally be in charge of distributions. When creating a trust for children, think of the trustee as a “financial parent.” Does he or she have values that are similar to yours? If he or she has children, think of how he or she is raising them. If you want to encourage your children to work, you might not want to appoint a trustee who is overly generous with his or her own children.

Take the time to consider the trustees’ “jobs” and who might be a good choice.