Trusts
| Author | Jeffrey Wilson |
| Pages | 723-727 |
Page 723
A trust is a legal entity created for the purpose of holding, managing, and distributing property for the benefit of one or more persons. A trust can hold cash, personal property, or real property, or it can be the beneficiary of life insurance proceeds. In the most basic sense, a trust is just another form of a contract. Centuries ago, English landowners, in order to insure the continued wealth of the family, put their estates in trust to be controlled and managed under the terms of the trust agreement for an indefinite period of time. Once the land was placed in trust, the landowners controlled but technically no longer owned the land. As wealth was primarily measured at that time in history by the amount of land owned, the trust arrangement allowed the landowners immunity from creditors and may have absolved them of certain feudal obligations. While feudal concerns no longer exist and wealth is held today in many forms other than land, the concept of placing property in third party hands for the benefit of another while avoiding creditors has survived. A trust remains in many circumstance an effective tool to insure that the trust creator's wishes regarding the trust assets are complied with for many years, even during periods of the creator's mental incompetency or after death.
A trust can be created during a person's lifetime and survive the person's death. A trust can also be created by a Will and formed after death. Once assets are put into the trust they belong to the trust itself, not the trustee, and remain subject to the rules and instructions of the trust contract. Most basically, a trust is a right in property, which is held in a fiduciary relationship by one party for the benefit of another. The trustee is the one who holds title to the trust property, and the beneficiary is the person who receives the benefits of the trust. While there are a number of different types of trusts, the basic types are revocable and irrevocable.
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Revocable Trusts are created during the lifetime of the trustmaker and can be altered, changed, modified or revoked entirely. Often called a Living Trust, these are Trusts in which the trustmaker transfers the title of a property to a Trust, serves as the initial Trustee, and has the ability to remove the property from the Trust during his or her lifetime. Revocable Trust are extremely helpful in avoiding probate. If ownership of assets is transferred to a revocable trust during the lifetime of the trustmaker so that it is owned by the trust at the time of the trustmaker's death, the assets will not be subject to probate.
Although useful to avoid probate, a revocable trust is not an asset protection technique as assets transferred to the trust during the trustmaker's lifetime will remain available to the trustmaker's creditors. It does make it more somewhat more difficult for creditors to access these assets since the creditor must petition a court for an order to enable the creditor to get to the assets held in the trust. Typically, a revocable trust evolves into an irrevocable trust upon the death of the trustmaker.
An Irrevocable Trust is one which cannot be altered, changed, modified or revoked after its creation. Once a property is transferred to an Irrevocable Trust, no one, including the trustmaker, can take the property out of the Trust. It is possible to purchase Survivorship Life Insurance, the benefits of which can be held by an Irrevocable Trust. This type of survivorship life insurance can be used for estate tax planning purposes in large estates, however, survivorship life insurance held in an Irrevocable Trust can have serious negative consequences.
An Asset Protection Trust is a type of Trust that is designed to protect a person's assets from claims of future creditors. These types of Trusts are often set up in countries outside of the United States, although the assets do not always need to be transferred to the foreign jurisdiction. The purpose of an Asset Protection Trust is to insulate assets from creditor attack. These trusts are normally structured so that they are irrevocable for a term of years and so that the trustmaker is not a current beneficiary. An asset protection trust is normally structured so that the undistributed assets of the trust are returned to the trustmaker upon termination of the trust provided there is no current risk of creditor attack, thus permitting the trustmaker to regain complete control over the formerly protected assets.
Charitable Trusts are trusts which benefit a particular charity or the public in...
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