Last night, I was sitting with my husband. I asked what he wanted to know more about regarding estate planning. He stated that most people he speaks with are unaware of the parties to the Trust. So today, I’d like to discuss (i) the parties of the trust, (ii) the terms associated with the trust; and (iii) what role they play in trusts. What does the Monopoly guy have to do with this? Read on and you'll see.
As we've discussed, a trust is a way to determine how your assets will be handled after you depart this life or upon incapacitation. The parties of a trust are the:
Trustor/Settlor;
Trustee; and
Beneficiaries.
The Trustor/Settlor is the person or company that creates the Trust. They could also be called the Grantor. It is usually the person who is bringing the assets to the Trust. Depending on the type of Trust, the Trustor generally retains the right to amend, alter, or revoke the Trust.
The Trustee is the person who manages the assets of the Trust. They are similar to the banker of Monopoly: there to help assist others during the game. (Fun fact, the Monopoly guy's name is actually Rich Uncle Pennybags.) The Trustee controls the assets for the sake of the Beneficiaries. They also have a legal duty to protect the Trust assets and make certain that the purpose of the Trust is followed. As mentioned before, this legal duty is often called a fiduciary duty.
The Trust grants certain powers to the Trustee that enables them to sell or borrow against the Trust’s assets. It also grants certain powers to the Trustee to buy additional assets. Sometimes the Trustee is the same person as the Trustor. The Trust should also define a Successor Trustee for those times when the Trustee becomes incapacitated or departs this life.
The Beneficiaries are the people who profit from the Trust. The profit is the Trust’s income and principal or equity of the Trust. There are three types of Beneficiaries:
The Primary Beneficiaries are the first to receive the benefits of the Trust assets. Most Trusts are set up so that the Trustor receives the benefit of the Trust. Therefore, they are the Primary Beneficiaries of the Trust.
The Contingent Beneficiaries receive the benefits of the Trust assets after the Primary Beneficiaries. They will receive the benefits in the future, just not right now. However, depending on the purpose of the Trust, if the Contingent Beneficiary needs the money and it falls into a category defined in the Trust, the Contingent Beneficiary may approach the Trustee and ask for the money then.
Upon the death of the Trustor/Settlor or when the Trust becomes irrevocable, the Contingent Beneficiary becomes the Remainder Beneficiary. At this point, their rights to future benefits of the Trust cannot be altered, amended or revoked.
The identities of the Beneficiary and their rights are created by the Trustor when creating the Trust and, depending on the type of Trust, can be changed during their lifetime.
Those are the parties to a Trust. The key: Trustor/Settlor/Grantor is usually the person bringing the assets to the Trust. The Trustee is the person in charge of managing the assets. The beneficiaries are the people who benefit from the income and principal associated with the Trust.
I hope this post answers your questions and makes Trusts seem a little bit clearer. Please feel free to contact me if you have additional questions regarding these terms or even trusts. Debie@skvlegal.com or 646.592.5311.