Basic Characteristics and Elements of Trusts

Grantor

• A person who creates a trust (aka settlor, trustor)

Trustee

• Any legal person (individual or corporation)

• Maybe more than one trustee

• Powers of the trustee are defined by the law and trust instrument

• Selecting the trustee should consider honesty and competence, understanding the needs of the beneficiaries, experience, the absence of any conflicts, and the duration of the trust

• For complex situations, consider multiple trustees

Trust Beneficiary

• Trust may have a single beneficiary or there may be multiple beneficiaries

• May have identical or different interests in the trust property

• Beneficial interests are typically divided between “income” and “principal” Principal is what is paid into the trust when it is created and funded Income is what is earned by the principal

• A beneficiary does not have to be in existence at the time the trust is created

• Beneficiaries do not have to be related to the grantor of the trust

• Organizations (charities and others) may be named beneficiaries of trusts

• As a general concern, all beneficial interests in the trust vest not later than 21 years after the death of any person who is alive when the trust becomes effective (rule against perpetuities)

Trust Property

• Any type of property may be placed in a trust

• Property may be transferred to the trust during the lifetime of the grantor (an inter vivos trust) or under the will of the grantor (a testamentary trust)

Trust Funding

• Trust may be fully funded during the grantor’s lifetime

• Partially funded

• Nominally funded or unfunded

• Testamentary trusts are funded after the death of the grantor

• Inter Vivos trusts may be revocable or irrevocable