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TRUST BASICS
All trusts have certain common characteristics:
* CREATOR - The person who originates the trust is called the
creator. Other names for the creator could include grantor, the
maker, the settlor, the trustor, and other names. Typically, the
creator is the person with a goal in mind, which he or she hopes to
achieve by creating a trust. Usually, the creator contributes
assets to the trust during the creation, or shortly thereafter,
thereby becoming the "grantor".
* CONTROL - The person in control of the trust is called the
trustee. He is responsible for running the trust, making all
decisions, and managing the assets. Often, he has exactly the same
powers as if he were acting as an individual. He may have some
limitations to his power described in the trust. A trustee can
decline to accept the original appointment. However, after
acceptance, a trustee can't resign unless permitted by the trust
documents or by a court ruling. It's fairly common to have
co-beneficiaries, co-trustees, successor beneficiaries and
successor trustees. Co-trustees normally must agree on all
decisions, therefore allowing either to have veto power. This can
create conflicts, unhappiness, and other problems. We recommend
that singular individuals have control at any one time, if
possible. Otherwise, try to provide for a majority decision by
appointing unequal numbers of trustees or appoint a tie-breaker to
resolve conflicts.
* BENEFICIARY - The equity, value, or distributions from the trust
will benefit the beneficiary. There can be different types of
beneficiaries. For instance, income could go to one person for any
period of time; and principal could be distributed differently.
Beneficiaries could be limited to the benefit for only their life.
That would mean that their families (heirs) would not have any
rights to any inherited benefits. You could name some of them as
remainder beneficiaries anyway. That's the good news. Your
choice, your way. Many trusts have "remaindermen" or remainder
beneficiaries, who'll receive the trust assets after the trust
terminates, or after some of the other beneficiaries are gone. The
income beneficiaries and the remainder beneficiaries may be, but
don't have to be the same.
In some trusts, the same individual can be creator, trustee, and
beneficiary. Thus, he or she has complete control and benefit of
the assets, even while the assets are owned by the trust. Even if
the creator can't fill all the roles, the trustee and the
beneficiary frequently are one and the same. If it is of primary
intent to use the trust as a protector of assets; it is best if all
positions are NOT filled by the same person.
BASIC INGREDIENTS IN A TRUST:
* Trusts, entities created to own property, can be used by people
of moderate means as well as by the rich.
* When creating a trust, you need to carefully spell out the
identities of the parties, their roles and the assets you mean to
transfer to the trust.
* Control can be retained, especially when first getting
comfortable with the concept and use of trusts.
* Although you could give up control of assets, to gain tax
advantages and asset protection, you still can continue to exert
considerable influence over trust property.
* Trusts generally have one or more beneficiaries and one or more
trustees. Someone can function as both trustee and beneficiary.
* The trustee, as asset manager, is the controller, so considerable
care should be taken in selecting trustees, co-trustees, and
successor trustees.
* Trustees have a fiduciary responsibility to invest the trust
assets prudently and CANNOT legally convert assets to others not
named as beneficiaries.
* Trusts set up while you are alive are living trusts, which may be
revocable or irrevocable.
* Testamentary trusts, which take effect at your death, are
irrevocable.
* Irrevocable trusts are more powerful tax reduction and
asset protection tools than revocable trusts.
* When a trust is established, specific language should be should
be included on how and when the trust can be terminated.
* When drawing up a trust, get professional advice from many
sources, even if that means you end up spending substantial
amounts.
MULTIPLE TRUSTS
Don't think you have to stop at one trust. Depending on your
individual situation, you may be better off using two or more.
Just be sure that you're working with a knowledgeable, experienced
and reputable attorney--and that you fully understand all the
implications of your actions.
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