How Trusts Work Part I

By Doug Casarella – St. Louis, MO Attorney and LegalBuffet.com writer

Trusts are fantastic tools for creating an effective estate plan. Before you get that far, though, you may have some more fundamental questions. For most people, estate planning will provide the first exposure they have ever had to a trust. With that in mind, a brief overview of the mechanics of a trust can provide a foundation for you to understand how a living trust will accomplish your estate planning goals.

First, trusts are a legal concept governed by state law. What trusts are allowed to do will vary, sometimes greatly, depending on where you live. While many states follow the Uniform Trust Code in creating their state statutes, not all do and checking on your state’s specific laws can save much heartache later on.

There are several bits of legal jargon used to describe the people involved in a trust. The creator of the trust is often either called the grantor or the settlor. The person or business controlling the trust is called the trustee (and there can be more than one). The person(s) who receive money or assets from the trust are called beneficiaries. There can be present beneficiaries (those who will receive assets currently) and future beneficiaries (those who will receive something in the future, based on the language of the trust). The assets in the trust are called the principal of the trust, or at a higher level of legal jargon, the res or corpus.

When they are created, trusts split the ownership of whatever is in the trust into two. So, if a house is placed into a trust, its title is split into equitable title and legal title. Equitable title is given to the beneficiary of the trust. Legal title is given to the trustee. While it is possible for the settlor to be both a trustee and a beneficiary, if they are the sole trustee and the sole beneficiary, the trust ends by means of the merger doctrine, because the split interests of the trust have come back together in one person.

A little bit of education on how trusts operate will hopefully make you feel more confident in creating your estate plan. In the next part of this article, we will look at the mechanics of trust distributions and modifications.

With this article, you’ve got a better basic understand of trusts. Do you need assistance with estate planning?

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