- A Trust has 5 Elements
Trusts have evolved to the point where there is a specialized trust to fit almost every estate planning goal or need. All trusts, however, require the same five elements for creation, including:
- Settlor – the person that creates the trust. A Settlor may also be referred to as the Grantor or Maker of the trust.
- Trustee – an individual or entity that enforces the trust terms as well as manages and invests the trust assets.
- Beneficiary – a beneficiary is the person, entity, or even family pet that receives the benefit of the trust assets.
- Terms – created by the Settlor and may be anything that is not illegal or unconscionable.
- Funding – almost anything of value can be used to fund a trust, including cash, securities, and/or real property.
- How is a Trustee chosen?
The Settlor of a trust chooses the Trustee. This often results in a common mistake – appointing a friend, family member, or spouse as the Trustee of a trust when that person is not qualified to be the Trustee. Understandably, people often think that appointing someone they trust to be the Trustee of their trust makes sense. While you should certainly trust the person you appoint as your Trustee, the individual should have a legal background as well as some experience in finance given the types of duties the Trustee will have when administering the trust. In fact, for larger, more complex trusts, it is often best to appoint a professional Trustee.
- What does it mean to “Administer” a trust?
The terms of a trust, which are created by the Settlor, are reduced to writing in the form of a trust agreement. Once the trust is active, someone must make sure those terms are followed and make sure the trust assets are safely maintained. All of this is part of trust administration. Administering a trust can be a fairly easy job if the trust is simple and the trust assets are minimal.
- What does a Trustee do?
The duties and responsibilities of a Trustee can be wide ranging and will differ from one trust to another; however, there are some common duties and responsibilities most Trustees have, including:
• Investing trust assets using the “prudent investor” standard.
• Managing trust assets.
• Distributing trust assets.
• Keeping trust records.
• Preparing and filing trust taxes.
• Defending the trust against legal challenges.
- When does trust administration end?
Trust administration ends when the trust terminates or is revoked. The trust will terminate on a date specified by the Settlor or by the occurrence of a specific even as specified by the Settlor. If the trust is a revokable trust, the trust may terminate at any time if the Settlor decides to terminate it as well. It may also be possible for the beneficiaries and/or Trustee to terminate a trust if everyone agrees to do so. Finally, a court always has the legal authority to terminate a trust; however, as a general rule, a court will only terminate an irrevocable trust upon the showing of good cause, such as the trust purpose has become impossible to continue.
- How is a Trustee chosen?