The word trust is a common verb in the English language. As a noun, it is one of the greatest creations of English common law that has been around for centuries.
What is a trust?
- A relationship among four elements:
- Settlor – The original owner who creates or ‘settles’ the trust
- Trustee – New legal owner who makes all decisions to manage the property
- Beneficiary – New equitable owner who will eventually get the property and earnings
- Property – Can be any property that anyone might own personally
Why would someone settle a trust?
- The separation of legal and equitable ownership can have many benefits
- For minors, allows a more mature person to manage property and delay its distribution until some time beyond the age of majority
- For the mentally incapable disabled, it will allow a capable person to manage the property and can assist in preserving social support payments now or in future
- For those with creditor problems, it could insulate against creditor claims
- For ‘over-spenders’, the settlor could control the purse strings
- In addition, any of these uses can be a tax-advantaged structure if created using a Will
So if I have one of these situations, how do I create a trust?
- Legal requirements are that there be three certainties
- 1) that it be clear who is to be the beneficiary/ies
- 2) that the property subject to the trust is ascertained
- 3) that there is no doubt of the intention
Is there any particular phrases or procedures necessary
- It is best if a written trust declaration is used
- Can be done at anytime while a person is living — an inter vivos trust
- Can also be done in a Will — a testamentary trust (can reduce taxes)
- If there is no written record, there may still be a trust but it may not operate the way the settlor may have intended