What is a Trust?
A trust is a way to hold your assets that provides greater protection and avoids probate when you die. If property structured, a trust can also minimize income taxes and estate taxes.
There are three positions in a trust: the Settlor, the Trustee, and the Beneficiaries.
The Settlor (also known as the “Grantor” or “Trustor”) is the person who establishes the trust. The Trustee is the person who manages and distributes the assets according to the Settlor’s written instructions. The Beneficiaries are the people or charities that benefit from the trust, either now or in the future.
There are many different reasons for which a grantor would set up a trust and those reasons would influence the drafting of the trust. Depending upon the reasons for the trust, the grantor might choose different trustees. We will discuss the considerations for the selection of trustees in a future blog post. And depending upon the purposes of the trust, the terms for distributions to the beneficiaries might vary. Possible purposes of the trust include probate avoidance, tax minimization, management for minors, creditor protection, etc.
Many Settlors serve as their own Trustee while they are living and not incapacitated. The Trust Agreement lists backup, or “Successor Trustees” who will serve as Trustee when the Settlor passes away or becomes incapacitated.
For example, Mary sets up a trust for her son, John, for his future needs. Mary is concerned that John does not have good judgment. So, Mary asks her brother, Steve, to be the trustee to manage the assets for John’s future needs. She gives Mike $100,000 to Mike to hold as trustee.
Implicit in the trust is that the grantor trusts the trustee to carry out the terms of the trust and do what has been asked of them. In the above example, Mary is trusting that Steve will hold the $100,000 and use the money for John’s future needs. She is trusting that Steve will not spend the money on that European vacation he’s been wanting to take. She’s also trusting that Steve will use his discretion to decide when John needs the money. In a future blog post, we will discuss different discretionary standards which might be used and what they mean for the trustee and beneficiaries.
How can I decide if a Trust is right for me?
Call today to schedule your complimentary estate planning consultation with Ed Matthews.
Ed Matthews is one of only a few attorneys in the state of Minnesota who is also a currently licensed Certified Public Accountant (CPA). Ed graduated summa cum laude from William Mitchell College of Law in 2003, where he served as Executive Editor of the Law Review. He is a former Minnesota Supreme Court law clerk. Perhaps, most importantly, he does not practice probate! Instead, he has dedicated his life to helping Minnesota families avoid probate and protect their hard-earned assets.
To schedule a complimentary consultation with Ed Matthews, call (651) 501-5608.
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