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Three Parties to a Trust

There are three parties to a trust: (1) the settlor (sometimes called the donor or grantor); (2) the trustee; and (3) the beneficiary. Let’s talk about the “middle man” of this arrangement – the trustee.

Definition of Trustee

The trustee is the person who receives the property and accepts the obligation to hold the property for the benefit of the beneficiary. There can be one, two, or many trustees.

two people talking

General Duties of Trustees

A person who accepts the role of trustee has numerous responsibilities. In particular, trustee owes several duties, which may be fairly summarized as follows:

  1. The duty to be prudent, especially with respect to the investment of trust assets.
  2. The duty to carry out the terms of the trust.
  3. The duty to be loyal to the trust and administer the trust solely for the benefit of the beneficiaries.
  4. The duty to give personal attention to the affairs of the trust.
  5. The duty to provide regular accounting to the beneficiaries.

Court Can Choose Trustees

If the trustee chosen by the settlor is unwilling or unable to serve, and if the settlor has not chosen a successor trustee, a court will appoint a trustee to carry out the terms of the trust. ”A trust will not fail for want of a trustee.”

Individual Trustees & Corporate Trustees

discussion over table with laptop

A trustee can be one or more people or can be what is known as a corporate trustee. Many banks, other financial institutions, and even a few law firms have trust departments to manage trusts and carry out the duties of the trustee. These are professional trustees and, of course, charge fees for services rendered. But, there are no formal requirements for being a trustee, and individuals still often serve as trustee for family members and friends.

Questions? Let’s Talk.

This hopefully clarified the important role of the trustee to assist your estate planning decisions, but you may have questions…which is great! Contact me to discuss further the status of your estate plan and your trustee decisions. Reach me by email at gordon@gordonfischerlawfirm.com or phone at 515-371-6077.

old and young hand touching a rose

If you have a living trust (sometimes referred to as an inter vivos trust) in your estate plan, you need to know how to administer it. That sounds like common sense, but there are some unique elements to consider that otherwise you probably wouldn’t think about. The following definitions and directions should help you with that process.

In the following descriptions I also include details of what role I play as a lawyer in assisting the process of funding and administering my clients’ living trusts.

(If you’re considering whether or not you need a living trust, this blog post helps break down the basics. Of course, don’t hesitate to contact me to discuss your individual situation.)

Tax Identification Number

As long as you are the trustee of the trust, the trust’s tax identification number is your social security number. No separate tax return will need to be filed for the trust for as long as you are the trustee.

Initial Funding of Trust

One of the primary reasons to use a trust is to give your trustees and beneficiaries the ability to avoid probate proceedings at your death. This only works if all your assets are owned by the trust. Accordingly, I suggest you transfer your assets to the trust as soon as you have signed your estate planning documents. The transfer can be easy or difficult, depending on the nature and extent of your assets. The following is a brief description of the process you should complete. I am available to assist you in the process if you wish. Your assets and accounts should be held as follows: (Your name), Trustee of the (Your name) Living Trust.  

Bank Accounts

You should make an appointment with each of your bankers to transfer ownership of your bank account to the trust. When you go, take an updated list of your accounts with the bank or have the banker print one for you. Also take a copy of your trust agreement. If you open new accounts or certificates, please make sure that those new accounts are held in the name of the trust.

piggy bank with gold coins

Option: If your bank requires you to establish a new bank account for your trust and you do not desire to replace your current account for various reasons, you can establish a “Payable on Death” (POD) designation on your bank account to provide that upon your death the account is paid to the Trustee of the ________ Living Trust. This should be handled by your bank.

Brokerage Accounts

The procedure for changing brokerage accounts should be the same as the procedure for transferring your bank accounts.

Stocks and Bonds Held in Certificate Form

If you own stocks and bonds in certificate form, you will need to obtain directions from the transfer agent for each individual stock or bond owned. An alternative would be to have your broker, if you have one, assist you with the transfer. I am often asked to assist my clients in the transfer of these types of assets; please let me know if I can assist you.

Savings Bonds

Savings bonds can be transferred to your trust; you should take your bonds to the bank to be reregistered. Current regulations do not require title to be changed if the total amount of the U.S. Savings Bonds are less than $100,000.

Closely Held Business Interests

If I am the attorney for the business, I can assist you in transferring ownership from the business to the trust. If I am not, you should contact the attorney for the business or whoever is in charge of the ownership record books. If they are not familiar with the use of living trusts or are hesitant to change ownership, please contact me.

Real Estate

modern condos

As part of my service in preparing trusts, I prepare and record deeds transferring your Iowa real estate to your trust. For out-of-state property, you should contact an attorney in the state to complete the transaction. I can refer you to an out-of-state attorney if you do not know of one to assist you. It is particularly important to change ownership of out-of-state real estate. If you don’t, separate probate proceedings may be requited. You should also contact your liability insurance agent and ask them to add your trust as an additional insured on your household and liability policies.

Tangible Personal Property

Unless your household goods and personal effects are quite valuable, I would generally not prepare a bill of sale transferring those goods to your trust. Your will contains provisions regarding the distribution of personal property, and you can also write a list of memorandum specifically providing for the distribution of those goods. You do not need to retitle your automobiles, as your family will be able to sign an affidavit concerning the ownership of the automobile after your death.

Assets with Beneficiary Designations

Your trust will not control the disposition of assets you own with beneficiary designations, such as life insurance policies, annuities, IRAs, and other retirement plans. The beneficiary designation form controls the disposition of those assets. You should avoid listing your estate as the beneficiary of any of these types of assets unless we  have specifically advised you to do so. You may list your trust, individuals or charities as the beneficiary or beneficiaries. If you list beneficiaries other than your trust, please remember that on your death the beneficiary will receive those assets in addition to his or her share of the trust assets.

Changing Trust Provisions

You can amend or revoke your trust at any time. Simply call me and I will prepare the appropriate paperwork.

When you are no Longer the Trustee

two people sitting at table

If you become unable to manage your financial affairs, or if you simply want to have the successor trustee act on your behalf, the successor trustee will need to obtain a separate tax identification number from the IRS and a short form information tax return will need to be filed each year.

Administration of Trust upon your Death

Upon your death, the successor trustee will administer and distribute the trust assets in accordance with the provisions of your trust. If you ever have any questions about the administration of the trust, please contact me.

 Questions?

You probably still have some questions on living trusts…which is why I’m here! Don’t hesitate to contact me by phone (515-371-6077) or email (gordon@gordonfischerlawfirm.com). I offer a free one-hour consultation at which point we can discuss your personal situation, see if a trust is right for you, and set up the steps for your success.

brown books on shelf

When you hear the word “trust” it’s usually in the context of a belief of reliability of someone, such as: “I trust her to read about the past legal word of the day, quid pro quo.” Trust in the world of estate planning is entirely different, although you can certainly put trust in a well-crafted trust to maximize the benefits of an estate plan!

What is a Trust?

In simplest terms, a trust is a legal agreement between three parties: grantor, trustee, and beneficiary. This allows a third party (the trustee) to hold assets for a beneficiary (or beneficiaries). Trusts can be set up in a variety of ways and specify the details of when and how the assets will pass to the beneficiary. Trusts are a part of a well-crafted estate plan and can be used to minimize fees, costs, and taxes.

Let’s break it down further by looking at each of the three parties to a trust.

Grantor

 

All trusts have a grantor, sometimes called the “settler” or “trustor.” The grantor creates the trust, and also has legal authority to transfer property to the trust.

Trustee

The trustee can be any person or entity that can take title to property on behalf of a beneficiary. The trustee is responsible for managing the property according to the rules outlined in the trust document, and must do so in the best interests of the beneficiary.

Beneficiary

The beneficiary is the person or entity benefiting from the trust. The beneficiary can be one person/entity or multiple parties (true also of grantor and trustee). Multiple trust beneficiaries do not have to have the same interests in the trust property. Also, trust beneficiaries do not have to even exist at the time the trust is created (such as a future grandchild, or charitable foundation that has been set up yet).

Trust Property

A trust can be either funded or unfunded. By funded, we mean that property has been placed “inside” the trust. This property is sometimes called the “principal” or the “corpus.”

Any Asset

Any asset can be held by a trust. Trust property can be real estate, intangible property, business interests, and personal property. Some common examples of trust property include farms, buildings, vacation homes, money, stocks, bonds, collections, personal possessions, vehicles, and so on.

“Imaginary Container”

We speak of putting assets “in” a trust, but assets don’t actually change location. Think of a trust as an “imaginary container.” It’s not a geographical place that protects your car, for example, but a form of ownership that holds it for your benefit. For instance, on your car title the owner blank would simply read “the Jane Smith Trust.” It’s common to put real estate (such as farms, homes, vacation homes) and entire accounts (like bank, credit union, and brokerage accounts) into a trust.

After the trust is funded, the trust property will still be in the same place before the trust was created—your land where it always was, your car in the garage, your money in the bank, your stamp collection in the study, and so on. The only difference is the property will have a different owner: “The Jane Smith Trust,” not Jane Smith.

Transfer of Ownership

 

 

Putting property in a trust transfers it from personal ownership to the trustee, who holds the property for the beneficiary. The trustee has legal title to the trust property. For most purposes, the law treats trust property as if it were now owned by the trustee. For example, trusts may have separate taxpayer identification numbers.

But trustees are not the full owners of trust property. Trustees have a legal duty to use trust property as provided in the trust agreement and permitted by law. The beneficiaries retain what is known as equitable title: the right to benefit from trust property as specified in the trust.

Assets to Beneficiary

The grantor provides terms in a trust agreement as to how the fund’s assets are to be distributed to a beneficiary. The grantor can provide for the distribution of funds in any way that is not against the law or against public policy.

game of chess

Types of Trusts

The types of trusts are almost limitless. Trusts may be classified by their purpose, duration, creation method, or by the nature of the trust property.

One common way to describe trusts is by their relationship to the life of their creator. Those created while the grantor is alive are referred to as inter vivos trusts or living trusts. Trusts created after the grantor has died are called testamentary trusts.

Another way you can describe trusts is by whether they are revocable or irrevocable. A revocable trust can be modified by the grantor; an irrevocable trust cannot be modified or terminated without the beneficiary’s permission.”

But again, there are so many types of trusts, and the aforementioned are just a few examples.

Do YOU need a trust?

If you have substantial or complicated assets (for example, you own more than one piece of real estate), own part or all of a robust business, or have any other special circumstances, a trust may be incredibly helpful.

Great Place to Start: Estate Planning Questionnaire

A great place to start is with the estate plan questionnaire, provided to you free, without any obligation. Also, feel free to reach out at any time by email, gordon@gordonfischerlawfirm.com, or on my cell, 515-371-6077.

Wraparound bookshelf

Last month’s GoFisch book club pick was a real life soap opera-esque story of estate planning, inheritance, and complex affairs tied to extreme wealth. This month’s read is also about estate planning, but is a fiction story with the quick pacing of a comedy and dialogue of a melodrama. I bet you could fly though this one while lounging poolside or swinging in the backyard hammock!

The Nest book

The Nest, by Cynthia D’Aprix Sweeney, follows the dysfunctional Plumb Family siblings around New York City as they deal with the unexpected fallout from the eldest Plumb’s major, costly mistake. All the while, the four adult siblings are the beneficiaries to a trust fund they have deemed “the nest” (like a nest egg, so to speak). The “nest,” thanks to sound investing and a generous market, grew larger than the grantor (the Plumb’s father) ever expected. Indeed, he intended for it to be helpful, but not a pot of gold to depend upon.

Leo’s accident (the oldest brother) and the unintended consequences that follow, puts a “crack” in the nest egg all had come to count on. (All four siblings had to wait to have access to their share of the funds until the youngest child turned 40.) Tensions flare, grudges are dredged up, and each of the Plumb siblings will have to reckon with their own poor financial decisions. Indeed, they were all depending on the trust fund in different ways to help bail them out of their own missteps.

This New York Times bestseller masterfully sets an engaging domestic drama filled with familial love and letdowns midst important estate planning elements. The Nest (at least for me) naturally leads its readers to want to learn more about different types of trusts, explore why estate planning is super important, and to whom they’re leaving their money to and how. It also reminds us that it’s super important to honestly discuss estate planning decisions and intentions with your loved ones who are named in the estate plan, so everyone is on the same page.

I would love to hear your thoughts about this book in the comments below! Did you love this book or not so much? Do you have any recommendations of books (fiction or non) related to Gordon Fischer Law Firm’s core services of estate planningnonprofit formation and guidancenonprofit employment law; or donations and complex gifts? Let me know in the comments or contact me by email or phone.

Gordon Fischer working hard to make sure a proper estate plan is in place for you and your family
Stacked books and notebook

What’s It All For?

In Hamilton: An American Musical, a perplexed Alexander Hamilton asks Aaron Burr, “What was it all for?” Regarding trusts, we know that all the work is for the beneficiary.

Classic Definition of “Trust” and “Beneficiary”

A trust is created when a property owner transfers property to a person with the intent that the recipient hold the property for the benefit of someone else. There are three parties to a trust: (1) the settlor (also called donor or grantor); (2) the trustee; and (3) the beneficiary. Every trust must have at least one beneficiary – a person for whose benefit the trust property is being held and who therefore has legal rights to enforce the trust.

Beneficiaries Must Be Sufficiently Definite

 

two people standing against white wall laughing

The beneficiaries must be described with sufficient detail that their identities can be determined. If the description of the beneficiaries is too vague or indefinite, then the trust will fail and the property will be returned to either the settlor or the settlor’s estate.

Let’s take two simple examples.

  • Alan establishes a trust for the benefit of his then-living children. The beneficiaries are sufficiently definite.
  • Sara establishes a trust for the benefit of all her friends. The beneficiaries are insufficiently definite.

Easy, right?

Exception: Charitable Trusts

There is one narrow, but critically important exception to the rule beneficiaries of a trust must be sufficiently definite. Charitable trusts–trusts established to fulfill a recognized charitable purpose – can be for the benefit of an indefinite group. For example, a charitable trust set up to provide scholarships to disadvantaged youth will be held valid.

Multiple Beneficiaries: Concurrent Interests or Successive Interests

Trusts can have more than one beneficiary and they commonly do. In cases of multiple beneficiaries, the beneficiaries may hold concurrent interests or successive interests. An example of concurrent interests is a group of beneficiaries identified as grandchildren of the settlor, who all receive distributions after their grandparents’ deaths. An example of successive interests is a trust in which one beneficiary has an interest for a term of years, and the other beneficiary holds a future interest, to become possessory only after the present interest terminates.

 

dad swinging children on beach

Special Remedies for Beneficiaries

There are several remedies available to an aggrieved beneficiary in the event of a breach of trust by a trustee. Such remedies include claims for damages, injunction to restrain a breach, tracing and/or recovery of trust property, among others. A beneficiary may be able to recoup damages, perhaps even from the trustee’s personal assets. If the trustee wrongfully disposes of trust property, the beneficiaries may be able to reclaim the property from a third party. Again, legal remedies for a breach of trust by a trustee are broad.

Let’s Talk More About Trust Beneficiaries

Interested in establishing a trust or having difficulty deciding on beneficiaries? Don’t hesitate to reach out; email me at gordon@gordonfischerlawfirm.com. I offer a free one-hour consultation to everyone, without any obligation. I’d be happy to talk to you any time.

Although well-meaning, my husband and I are perpetually running late. We are late for everything—missing the first two minutes of a movie, showing up 30 seconds too late to see the balloon drop at a New Year’s Eve party, showing up to a physical therapy session five minutes late… Sound familiar?

When it came to finances, my husband and I managed to keep up on bills and our credit scores were decent, but we were always just doing the minimum to keep our heads above water. Saving enough funds for a couple trips, enough to pay the bills, and maybe throw a couple bucks into long term savings.

There is a game changer in this equation: our daughter.

Photo by Aditya Romansa on Unsplash

She has been the single greatest catalyst in our lives and has forced us to address the facts about sound financials and estate planning. We were especially concerned about the potential for an accident involving both me and my husband.

We decided to create an estate plan with Gordon because we needed reassurance that should anything happen to us, she would be cared for with as minimal amount of legal hiccups as possible.

Gordon set us up with a complete estate plan. It wasn’t nearly as complicated (nor as expensive) as we would have thought.

My husband and I took special care selecting her guardians, should something happen to us, as well as setting up a trust for her to gain access to assets after her 18th birthday.

We plan to revisit the estate plan annually, just to make sure that everything is current. In addition to her college fund, it is our way of taking her financial security seriously and planning for the unexpected. Maybe she’ll forgive us for the chronic lateness she inherited with the knowledge that she has also inherited a strong financial support system in place to help her, no matter what.


Note from Gordon: If you’re like this client (who wished to remain anonymous), children and grandchildren can mean you’ll pursue legal and financial actions you never thought of before to ensure piece of mind that they’ll be taken care of if something happens to you. There’s no harm in giving me a call or shooting me an email to at least talk about what you may need in terms of an individualized estate plan. I look forward to working with you!

Marriage document

In Iowa, Spouses Can’t Disinherit Spouses

Can Monica, my wife, disinherit me? In a word, no.

Assuming a valid marriage in Iowa, a spouse cannot disinherit a spouse. Even if a spouse wants to do so, even if that’s the spouse’s true intent—nope.

What If…?

What if in a legal will, the first-to-die spouse includes the following clause:

“I acknowledge that I have a spouse, named Gordon Fischer, who is not provided for in this will. It is my specific intention to not provide for my spouse Gordon Fischer under the terms of my will.”

Even with a clear clause like this, I, Gordon, am not disinherited. Why is this so?

Statutory “Forced Share”

Iowa Seal

An Iowa statute allows spouses to take a “forced share” against the will. In short, the surviving spouse has a choice; the spouse can inherit any property bequeathed to him/her under the will, OR the spouse can take a forced share. So, even if a will leaves nothing for the surviving spouse, the surviving spouse can take a forced share against the will.

Under Iowa law (specifically, Iowa Code § 633.238), a surviving spouse that elects against the will is entitled to:

  • One-third of the decedent’s real property;
  • All exempt personal property that the decedent held; and,
  • One-third other personal property of the decedent that is not necessary for payment of debts and other charges.

In other words, a surviving spouse can choose (elect) after your death to basically ignore your will or trust that doesn’t provide for said surviving spouse, and take approximately one-third of your estate.

For example, if you left your entire estate to your children and not your spouse, your spouse can say, “You know, I don’t like this at all. I’ll take one-third of my dead spouse’s estate. Thank you!” And, pretty much just like that, boom, the surviving spouse can do so.

Oral Agreement to Disinherit

What if Monica and I talk about this matter and come to an oral agreement. Something like this:

Monica: I want to disinherit you. Should you be the surviving spouse, you should get nothing.

Gordon: Wow. That hurts. But if that’s what you want honey, I agree.

Is this agreement enforceable? No, for several reasons. First, it’s not written and oral agreements are generally unenforceable. Also, it doesn’t and can’t displace the plain language of an Iowa statue which allows a spouse to elect a forced share against the will, and gain one-third of the estate. You can’t orally agree to ignore a statute’s clear intent!

Written Agreement to Disinherit

But what if Monica asked me to agree, in writing, to not take a spousal share? Say, we write up a formal contract stating I’m essentially not getting anything under Monica’s will, no how, no way. I also agree in the contract that under no circumstances will I take a statutory share.

Would such a written contract be enforceable? No.

While Iowans have a great deal of freedom to contract, just like the above oral agreement example, you can’t contract in direct opposition to a clear statute.

Postnuptial Agreements

Also, interestingly, Iowa courts have ruled postnuptial agreements are not enforceable.

Married penguin cake toppers

Postnuptial agreements are written contracts between spouses that are executed after the couple has married (as opposed to the prenuptial agreements you usually hear about). Iowa courts have struck down postnuptial agreements for nearly a century, since 1912 when the Iowa Supreme Court first found postnuptial agreements to be of no validity. In re Kennedy’s Estate, 135 N.W. 53 (Iowa 1912).

But Monica, it’s OK. Very likely you’ll be the surviving spouse anyway.


Beyond just your spouse, it’s important to have an updated estate plan to define all of your beneficiaries and wishes for your estate following your death. Have questions or need more information? Feel free to reach out any time. You can contact me by email at Gordon@gordonfischerlawfirm.com or give me a call at 515-371-6077.

Top of the morning to you! On this happy St. Patrick’s Day, let’s discuss a great charitable giving tool that we are lucky to have—the Charitable Remainder Trust (CRT).

On this holiday, we see lots of depictions of green clover. Like most clovers, this series will come in three parts. Today, we’ll discuss the very basics of trusts. In Part Two (coming soon), we’ll discuss all the ins and outs of CRTs. Part Three will feature a simple but powerful case study to illustrate how beneficial—both to donors and donee charities—a Charitable Remainder Trust can be.

Why Are Charitable Remainder Trusts So Grand?

When it comes to the legal tool we call “trusts,” I can be said to be like Molly Bloom, the heroine in James Joyce’s Ulysses:

“[my] heart was going like mad and yes I said yes I will Yes.”

Why though? What is so great about trusts, anyway?

Trusts come in an almost limitless variety, but some of the key benefits include:

  • Saving taxes
  • Avoiding probate
  • Getting assets to your beneficiaries more quickly and easily
  • Maintaining privacy

Trusts also make challenges to your property more difficult. Since they can be so useful, let’s toast trusts with a pint of Guinness. Sláinte!

Sláinte Scottish Toast

Simplest Terms

In simplest terms, a trust is a legal agreement between three parties: grantor, trustee, and beneficiary. Let’s look at each of these three parties.

Grantor

All trusts have a grantor, sometimes called the “settler” or “trustor.” The grantor creates the trust, and also has legal authority to transfer property to the trust.

Trustee

The trustee can be any person or entity that can take title to property on behalf of a beneficiary. The trustee is responsible for managing the property according to the rules outlined in the trust document, and must do so in the best interests of the beneficiary.

Beneficiary

The beneficiary is the person or entity benefiting from the trust. The beneficiary can be one person/entity or multiple parties (which is also true of grantor and trustee). Multiple trust beneficiaries can have different interests in the trust property. Also, trust beneficiaries don’t have to even exist at the time the trust is created.

Trust property

A trust can be either funded or unfunded. By funded, we mean that property has been placed “inside” the trust. This property is sometimes called the “principal,” “corpus,” or the “res.” By unfunded, we mean that no property has yet been placed inside the trust.

Any Asset

Any asset can be held by a trust. Trust property can be real estate, intangible property, personal property—a farm, building, vacation home, money, publicly traded stocks, closed corporation stocks, bonds, collections (such as say, shamrocks or Guinness mugs), business interests, personal possessions (such as an antique hard owned by Nana), vehicles, and so on.
Glasses of Guinness

“Imaginary Container”

Leprechauns, some may argue, are imaginary. Think of a trust as an “imaginary container.” We speak of putting assets “in” a trust, but assets don’t actually change location. It’s not a geographical place that protects, say, your car, but a form of ownership that holds it for your benefit. For example, on your car title, the owner blank would simply read “The Erin G. Bragh Trust.” It’s common to put real estate such as farms, homes, vacation homes and entire accounts like bank, credit union, and brokerage accounts into a trust.

After the trust is funded, the trust property will still be in the same place before the trust was created—your land where it always was, your car in the garage, your money in the bank, your stamp collection in the study, and so on. But the property will have a different owner: “The Erin G. Bragh Trust,” not Erin G. Bragh.

Transfer of Ownership

Putting property in trust transfers it from personal ownership to the trustee, who holds the property for the beneficiary. The trustee has legal title to the trust property. For most purposes, the law treats trust property as if it were now owned by the trustee. For example, trusts have separate taxpayer identification numbers.

But, trustees are not the full owners of trust property. Trustees have a legal duty to use trust property as provided in the trust agreement and permitted by law. The beneficiaries retain what is known as equitable title, the right to benefit from trust property as specified in the trust.

Assets to Beneficiary

The grantor provides terms in a trust agreement as to how the fund’s assets are to be distributed to a beneficiary. The grantor can provide for the distribution of funds in any way that is not against the law or against public policy.

Almost Limitless Possibilities

The types of trust are almost as limitless as rainbows. Trusts can be classified by their purpose, duration, creation method, or by the nature of the trust property. Next time, let’s look at the specifics of a very helpful trust—the Charitable Remainder Trust. Until then, may the road rise up to meet you!