“What is a Trust?” In my Massachusetts estate planning practice I am asked that question all the time.
In its most basic terms, a trust is an arrangement under which one person, called a trustee, holds property (such as real estate or bank accounts) for another person, called a beneficiary. It is usually created with a document called a “declaration of trust” or an “agreement of trust.”
There are different types of trusts. One of the most popular is a “living trust” which is simply a trust that you create while you’re living. In contrast, a “testamentary trust” is one that is written in your will and is created after you die.
Trusts have different uses. Some of them can help you avoid probate, while others help protect your children’s inheritance after you are gone. (Let’s face it, most of us wouldn’t want our 18 year old kids to have access to thousands of dollars when we’re gone, so a trust can help prevent that from happening).
Because there are different types of trusts with different uses, writing a trust is sometimes like creating a very special recipe in the kitchen. But, like any recipe, a trust is made up of different ingredients, all of which are needed to compliment the dish. Here are 7 ingredients to cook up a good trust:
- A Person setting up the trust. This person is the trustor, settlor or grantor and it is the person who wants to make the trust.
- Objective of the trust. Since different types of trusts achieve different objectives, you need to figure out what your goal is. Is it to avoid probate? Protect an inheritance? Plan for nursing care?
- Beneficiary. A trust needs a beneficiary – someone who benefits from the trust in some way. Maybe it’s your children or your grandchildren.
- Trustee. The person in charge of the trust is called the trustee. They are going to be managing the money or property that you put in trust. Because the trustee is the manager, he/she needs to understand the rules that you create for the trust.
- The Rules of the trust. To carry out the purpose or objective of your trust, any good trust is going to need a set of rules that will be followed by everyone involved. Some of the rules that must be followed are automatically part of the type of trust you chose, while other rules depend on what you put into the trust agreement.
- Property. Finally, you’ll need to put some property in trust. It can be almost any type of property: real estate, bank accounts, mutual funds, even a boat! But, after you place property into a trust, the trustee will need to manage the property according to the rules that you’ve established.
Trusts come in many different varieties. Regardless, when you’re setting up a trust, you need to decide what type of trust you want and make sure that you follow all the rules for that particular type of trust to make sure that it’s proper and legal, and carries out your intentions.
The Family Legal Planning system at Phillips & Garcia has been designed to help busy families get their Massachusetts estate planning done in a convenient and affordable way. To learn more about trusts and how they can be used in your estate plan, schedule your complimentary Family Legal Planning session with Attorney Andrew Garcia. To speak with Attorney Garcia call him at (508) 998-0800 or email him at [email protected]