Introduction to Trusts Chapter 12

Terminology Trust Settlor Trustee Legal Title Equitable Title Beneficiary Trust Property/Corpus Trust Instrument

Creation of a Trust

Trust A property arrangement in which real or personal property is transferred from the settlor to one or more trustees who hold legal title to the property for the benefit of one or more beneficiaries who hold equitable title

Settlor The creator of a trust, also called the creator, donor, grantor, or trustor

Trustee A person of trust who holds and manages property for the benefit of one or more beneficiaries A fiduciary who is required to perform all trust duties according to the terms of the trust instrument and of the law with loyalty, honesty, and good faith

Legal Title A form of ownership giving the trustee the right to control and manage the property for another’s benefit

Equitable Title (of a trust) The right of the party who holds the beneficial interest in a trust to the benefits of the trust

Beneficiary A person who has the right to receive the benefits of the property of a trust

Trust Property The real or personal property of the trust that the trustee holds subject to the rights of one or more beneficiaries

Trust Instrument A written document that creates a trust; establishes the terms of the trust; establishes the rights, duties, and obligations of the trustee; and names the beneficiary

Types of Trusts Revocable Irrevocable The settlor has the right to revoke or change the terms of the trust prior to his/her death Irrevocable Once created, the trust cannot be revoked or changed by the settlor

Essential Elements of a Trust A settlor who creates the trust One or more trustees who administer and manage the trust One or more beneficiaries who receive the benefits of the trust and who enforce the trust Real or personal property that must be transferred to the trust

Removal of a Trustee Lack of capacity Serious breach of trust Refusal to post bond when it is required Refusal to account for expenditures Crime of dishonesty Prolonged absence from the state Unreasonable failure to cooperate with a co- trustee, if there is one Showing favoritism to one or more beneficiaries

Powers of a Trustee Determined by the terms of the trust and by state statutes Trustee powers Sell assets Lease property Carry on a business Lend or borrow money Hire professionals

Duties of a Trustee Duty of performance and due care Duty of loyalty Duty to preserve and possess trust property Duty to invest trust property Duty to make payments of income and principal to beneficiaries Duty to account for profits and losses

Liability of a Trustee Remedies available to a beneficiary for a trustee’s breach of trust Removal Recovery of wrongfully taken assets Sue to compel the trustee to perform duties Sue for breach of loyalty

Cost of a Trustee Usually, a percentage of the assets under the trustee’s management May be waived for family members Can be regulated by statute

Beneficiaries Have equitable interest in the trust property Do not have the right to direct distributions or investments Can enforce the terms of the trust May be individuals or a class of people

Property of a Trust Is a gift from the grantor or settlor Also called corpus, res, principal, subject matter Can include real and/or personal property

Termination of a Trust Completion of the trust’s purpose Revocation by the settlor Merger of all interests (legal and equitable) in the same person Upon request of the beneficiary when there is no express purpose that requires continuation of the trust