News Affecting Seniors
In my years with Elder Law & Advocacy, I have been asked this question at least a hundred times. I suspect that clients who ask me this question have been to private attorneys, handed over two-to-three thousand dollars, and received a nice-looking binder and a handshake, but little explanation or instruction. This post provides some basic information on trusts for people who currently have a trust, or are considering starting one.
First and foremost, what is a trust? A trust is a legal entity, separate and distinct from the person/people who create it. A trust has a name (for example, The David A. Schwartz Trust). The person/people who create the trust are called the “settlor/s.” The trust can own property, and property that belongs to the trust does not also belong to the person/people who gave the property (the settlor/s), nor does it also belong to the person/people who are managing the trust at the time (the “trustee/s,” defined below).
When a settlor creates a trust, she decides how she wants the trust to be structured. There are two main decisions that every settlor must make: naming the trustee/s and successor trustees, and naming the beneficiary/ies and successor beneficiaries. The “trustee” is the person who is in charge of managing the trust’s property, for the benefit of the trust’s beneficiary. The “beneficiary” is the person for whose benefit the trust exists. The “successor trustee” and “successor beneficiary” are the people who the settlor names as next in line to serve as trustee and beneficiary, respectively. A trust can be set up to have multiple trustees or beneficiaries at the same time, and trusts often include lengthy lines of succession for the positions of trustee and beneficiary.
Generally speaking, a settlor creates a trust that names herself as both trustee and beneficiary. In this scenario, the settlor has authority to manage the trust as trustee (for example, to create a bank account in the name of the trust and to write checks from that account) for as long as she is able. The settlor is also the beneficiary in this scenario, so trust property can be used for her benefit (for example, to pay her mortgage, rent, or bills). She will remain the beneficiary for her entire lifetime, even if she is unable to continue serving as the trustee because of illness or any other reason. Only once she passes away will the trust begin to be used for the benefit of the successor beneficiary named in the trust.
An important benefit of having a trust hold property in its own name, rather than in the settlor’s name, is that the trust does not grow old, get sick, or die. The trust has a built-in line of successor beneficiaries that the settlor created, and the death of one beneficiary does not require the trust’s property to change hands. If property is instead held in the settlor’s own name, when the settlor dies, her property will need to pass through probate in order to be transferred to the settlor’s beneficiaries under a will.
This summary is by no means comprehensive. The attorneys at Elder Law & Advocacy can answer general questions you may have about trusts, or a trust you have or are planning to create. For the actual drafting or amending of trusts, we refer to attorneys who specialize in trusts.