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marketing strategy

All nonprofits can benefit from smart and targeted outreach to donors and potential donors. This is especially true when donors are increasingly demanding more options when giving. Long gone are the days when nonprofits can simply ask donors to write a check. Rather, current and potential donors want a wide menu of choices when it comes to charitable giving—choices that give them flexibility in the type of gift, in the timing of the gift, in the tool or vehicle that maximizes their tax benefits, and in how to make their support meaningful both to themselves and to the nonprofit.

There are three methods I’ve found that work well for nonprofits to communicate the many ways donors and potential donors can maximize their charitable giving. The communication methods include (1) newsletters; (2) in-person seminars; and (3) website content. Sure, this may seem obvious, but all of these tactics should be well done for the greatest impact. I am happy to advise and assist nonprofits in developing and implementing off of these methods to create an effective and sustainable program for outreach, information, and advocacy.

Newsletters

Nonprofits interested in using newsletters to communicate with donors should start with an up-to-date email list. Next, divide the list into three groups: (1) donors/potential donors; (2) nonprofits and nonprofit personnel; and (3) professional advisors (accountants, financial advisors, insurance agents, and lawyers…anyone who may recommend or advise your nonprofit). Each group would receive its own newsletter tailored according to its connection to the nonprofit, its interests, and the relationship you want to build with it. Generally speaking, sending newsletters one a month is a good balance. More often than this and you become email clutter, less than this and you’re not keeping the nonprofit top of supporters’ minds.

Donors

The newsletter sent to current and potential donors could focus on a specific topic such as the types of and flexibility of gifts the nonprofit accepts; explanation and use of the Endow Iowa tax credit; and giving through estate planning.

Nonprofits

The newsletter sent to nonprofits and related personnel could focus on compliance controls and internal policies, such as:

Professional advisors

The newsletter sent to professional advisors could take deep dives into complex charitable gifting tools such as different charitable remainder trusts (CRATs, CRUTs, NIM-CRUTS, FLIP-CRUTS, etc.), donor-advised funds, and IRA charitable rollover. Illustrating these tools with real-life case studies (with details changed to preserve privacy) will help professional advisors learn how to recognize philanthropic opportunities when presented by their clients.

Seminars

Monthly seminars on charitable giving are a great way to familiarize current and potential donors about what the nonprofit does and to inform them about the many ways their support can be crafted to fit their financial situation, needs, and interests. Holding seminars at the nonprofit’s offices, rather than at a soulless hotel meeting room or corporate campus, has a number of benefits. Visitors can see where the hard work gets accomplished; they can meet staff and volunteers; and overall, they will develop a closer emotional connection to the organization.

Seminars would be customized to the nonprofit’s unique needs and its targeted audience. I have given many nonprofit-focused seminars over the years and am happy to work together to develop the perfect presentation. There are few topics in the area of nonprofits, estate planning, and charitable giving that I do not feel completely comfortable speaking on.

All presentations I give include an engaging visual presentation, handouts, and plenty of time for questions and discussion. I also send slides used in the session to attendees following the training.

In terms of promotion, it’s best to announce the seminar program well in advance, schedule seminars at the same time every month, and hold them at the same location (e.g., the third Thursday of every month, at 8 a.m., at the Nonprofit Offices).

Website Content

There are three topics I recommend every nonprofit website have no matter its size or mission:

  1. charitable giving through estate planning
  2. tools and techniques for charitable gifting
  3. professional advisors

These topics should each have their own webpages.

The “charitable gifting through estate planning” webpage should describe what an estate plan is; how charitable giving happens through an estate plan; the benefits of trusts; and ways to use the beneficiary designations. The page can provide the official and full name of the nonprofit; address; and federal tax ID number. Also, providing sample bequest language can be incredibly helpful to both donors and professional advisors in starting to organize and think through a bequest.

“Tools and techniques for charitable gifting” should describe options aside from checks and credit cards. Short, concise paragraphs should highlight gifting retirement benefit plans; real estate; gifts of grain; charitable remainder trusts; and charitable gift annuities, among others.

The page for professional advisors ideally has a two-fold purpose. First, it is to demonstrate the nonprofit wants to work with professional advisors; that the nonprofit should be seen as another “tool in the toolbox” for professional advisors. Specific examples of ways the nonprofit have previously worked with professional advisors should be provided. Second, it could provide a deep-dive into the charitable gifting tools and techniques discussed earlier: really provide the gritty details, so it’s a valuable resource for professional advisors, complete with case studies.

Cautionary Note: Policies & Procedures

Before tackling these marketing ideas, nonprofits should put first things first, and be in optimal compliance with proper, well-drafted, and up-to-date policies and procedures. These should include the 10 major policies and procedures that support the best possible IRS Form 990 practices (such as public disclosure, gift acceptance, and whistleblowing). Nonprofits should also have documents in place covering the topics of employment, grantors and grantees, and endowment management. Further, nonprofits should provide regular training for boards of directors.

Please do not hesitate to contact me via email (gordon@gordonfischerlawfirm.com) or on my cell phone (515-371-6077). I’d be happy to discuss prospective nonprofit marketing strategies through newsletters, seminars, and website content, with you at your convenience.

man writing on trust paper

If you’re unsure of what a trust is and how it works, you probably don’t have one. And, if you don’t have a trust, you’re not alone. About 57 percent of U.S. adults don’t have an estate planning document like a will or a trust even though they believe having one is important.

What Is a Trust? How Does It Work?

If you haven’t stopped to consider how a trust might help ensure that your wishes are followed and your assets are handled, you could be making a critical estate planning mistake.

A trust is simply a legal agreement among three parties—settlortrustee, and beneficiary—that provides instructions on how and when to pass assets to the trust’s beneficiaries. Let’s look at the role of each of these three parties, and then delve into how trusts work.

Settlor

A settlor—sometimes called the “donor, “grantor,” or “trustor”—is the person who creates the trust and has the legal authority to transfer assets into it.  

Trustee

The trustee is the person who agrees to accept, manage, and protect the assets delivered by the settlor. The trustee has a fiduciary duty to administer the assets according to the trust’s instructions and distribute the trust income and principal according to the rules outlined in the trust document and in the best interests of the beneficiary.

A trustee can be one, two, or more people. A trustee can also be what is known as a “corporate trustee,” such as a financial institution (like a bank) or a law firm that performs trustee duties and charge fees for their services. There are no formal requirements for being a trustee and nonprofessionals frequently serve as a trustee for family members and friends.

Beneficiary

The beneficiary is the person or entity benefiting from the trust. The beneficiary can be one person or entity or multiple parties. Also, trust beneficiaries don’t even have to exist at the time the trust is created (such as in the case of a future grandchild or charitable foundation that has not yet been established).

Trust Property

A trust can be either funded or unfunded. “Funded” mean that the settlor’s assets—sometimes called the “principal” or the “corpus”—have been placed into the trust. A trust is unfunded until the assets are in it (failing to fund a trust is a common estate planning mistake). 

Trust Assets

Trusts can hold just about any kind of asset: real estate, intangible property (like patents), business interests, and personal property. Common trust properties include farms, buildings, vacation homes, stocks, bonds, savings and checking accounts, collections, personal possessions, and vehicles.

“Imaginary Container”

Think of a trust as an “imaginary container” that holds and protects your assets. 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 artwork on the wall, your money in the bank, your comic book collection in the den. The only difference is the asset will have a different owner: “The Jane Jones Trust,” rather than Jane Jones.

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 what is called “legal title” to the trust property and, in most instances, the law treats trust property as if it were now owned by the trustee. Each trust has its own taxpayer identification number, just like an individual.

But trustees are not the full owners of trust property. Trustees have a legal duty to use trust property as directed in the trust agreement and as allowed 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 settlor provides terms in a trust agreement directing how the fund’s assets are to be distributed to a beneficiary. The settlor can provide for the distribution of funds in any way that is not against the law or against public policy. The near-limitless flexibility of trusts is a primary advantage for setting one up.

Types of trusts

A joke among estate planners says that the only limit to trusts is the imagination of the lawyers involved.  It’s true, though, that the number and kind of trusts are virtually unlimited.

Let’s start by taking a look at the four primary categories of trusts:

Inter vivos and Testamentary Trusts

Trusts that are set up during the settlor’s lifetime are called “inter vivos” trusts. Those that arise upon the death of the settlor, generally by operation of a will, are called “testamentary” trusts. There are advantages and disadvantages to both types of trusts, and how one decides depends upon the goals and purposes of the settlor.

Revocable and Irrevocable Trusts

Inter vivos and testamentary trusts can be broken down into two more categories: revocable trusts and irrevocable trusts. A revocable trust can be changed at any time during the settlor’s lifetime. Second thoughts about a provision in the trust or about who should be a beneficiary might prompt modification of the trust’s terms. The settlor can alter parts of the trust or revoke the entire thing.

Irrevocable Trust

An irrevocable trust is a type of trust that can’t be changed by the settlor after the agreement has been signed and the trust has been formed and funded. The terms of an irrevocable trust can’t be modified, amended, or terminated without the permission of the settlor’s beneficiary or beneficiaries.

A revocable living trust becomes irrevocable when the settlor dies because he or she is no longer available to make changes to it. But a revocable trust can be designed to break into separate irrevocable trusts at the time of the grantor’s death for the benefit of children or other beneficiaries.

You might wonder, “Why make a trust irrevocable? Wouldn’t you want to maintain the ability to change your mind about the trust or its terms?”

Not necessarily.

Irrevocable trusts, such as irrevocable life insurance trusts, are commonly used to remove assets from a person’s estate and thus avoid them being taxed. Transferring assets into an irrevocable trust gives those assets to the trustee and the trust beneficiaries forever. If a person no longer owns the assets, they don’t comprise or contribute to the value of his or her estate and so they aren’t subject to estate taxes upon death.

Revocable living trusts

There is no “one size fits all” trust—different kinds of trusts offer different benefits (and drawbacks) depending on a person’s circumstances. Age, number of children, health, and relative wealth are just a few of the factors to be considered. The most common trust my clients use is a revocable living trust, sometimes referred to by its abbreviation, “RLT.”

A revocable living trust—created while you’re alive and that can be revoked or amended by you—has three advantages over other kinds of trusts:

 1. Money-Saving

Establishing a revocable living trust helps avoid costly probate—the legal process required to determine that a will is valid. Probate generally eats up about two percent (2%) of an estate, which can add up to a chunk of change you’d probably rather see go to your beneficiaries.

Avoiding probate also means avoiding other fees, such as court costs, that go along with it.

2. Time-Saving

A revocable living trust not only eliminates the costs of probate, but the time-consuming process of probate as well. Here in Iowa, probate can take several months to a year, or sometimes even longer, leaving beneficiaries without their inheritances until the very end of the probate process. The transfer of assets in a trust is much faster.

3. Flexibility

Don’t want your 16-year-old niece to inherit a half-million dollars in one big lump sum? I agree it’s probably not a good idea.

A revocable living trust offers flexibility for the payout of an inheritance because you set the ground rules for when and how distributions are made. For example, you might decide your beneficiaries can receive certain distributions at specific ages (21, 25, 30, etc.), or for reaching certain milestones, such as marriage, the birth of a child, or graduation from college.

last will and testament

Drawbacks

Despite the significant advantages of establishing a revocable living trust, there are drawbacks people should be aware of

For starters, trusts are more expensive to prepare than basic estate plan documents such as wills. However, the costs associated with sitting down with a lawyer and carefully putting in place a trust is, in my opinion, greatly outweighed by the money your estate will save in the end.

Creating a trust can also be an administrative bother at the start of the process because assets (farm, business, stock funds, etc.) must be retitled in the name of the trust. But, all things considered, this is a small inconvenience that is greatly outweighed by the smooth operation of a trust when you pass away.

You Can Trust me to Talk About the Best Trust(s) for You

Interested in learning more about trusts or questioning if you need one? Feel free to reach out at any time by email, gordon@gordonfischerlawfirm.com, or on my cell, 515-371-6077. If you want to simply get started on an estate plan (everyone needs at least the basic documents in place!) check out my estate plan questionnaire, provided to you free, without any obligation.

coffee-book-table-word-nerd

In the past I’ve written about specific “legal words of the day” where we take a deep dive into terms that can be confusing, misleading, or unknown. A few of the favorites? Breach of contract, subpoena, and inclusion rider. But, if you’re a word nerd like me, one word or phrase per blog post is not enough! Read on for nine important words related to a key estate planning tool you should know about—trusts.

Trust

To begin, what’s a “trust” itself? No, a trust is not like “I trust you to care for my dog while I’m on summer vacation.” Think more “trust fund kid,” except know that trusts are definitely not just for the wealthy. Trusts can be key to helping you achieve your estate planning (and charitable giving) goals.  At its most basic, a trust is a legal agreement between three parties: the settlor (or grantor), the trustee, and beneficiary. Let’s look at the meaning of these three parties, and then delve more into words which explain how a trust works.

Grantor

All trusts have a grantor, sometimes referred to as the “settlor” or “trustor.” The grantor creates the trust and has legal authority to transfer property to the trust.

Trustee

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

Corporate Trustee

There is a specific type of trustee called the corporate trustee. Many banks, other financial institutions, and even a few law firms have trust departments to manage trusts and carry out duties of trustees. These are professional trustees (so they should be very good at their roles) and charge fees for services rendered.

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).

Concurrent Interests or Successive Interests

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 grantors, 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.

Principal, or Corpus, or Res

A trust can be either funded or unfunded. By funded, I mean that trust property has been placed “inside” the trust. This property is called the “principal,”  “corpus,” or “res.”  A trust is unfunded until property is transferred into the name of the trustee of the trust.

Inter Vivos Trusts and Testamentary Trusts

One common way to describe trusts is by their relationship to the life of their grantor. 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.

Probate

A major benefit of trusts is avoiding “probate.” Probate is a court process that involves filing the will and a petition in probate court, followed by an inventory, property appraisal, totaling of owed debts and taxes, and payments of court costs and attorney’s and executor’s fees. After all of that is finished what’s left goes to the grantor’s beneficiaries. The estate of any decedent, whether s/he had a will or did not have a will, has to go through probate. A funded living trust can be a smart way to have your estate avoid the probate process. How does this work? Upon death the trustee simply distributes the assets within the trust as directed by the grantor. The caveat is that the property must be transferred to the trust.

Language lesson done for the day!

Beyond these important words, you should also know that trusts can have great utility in estate planning.

Among many other benefits, trusts have the advantages of:

  • saving money, including probate costs and other taxes and fees;
  • being extremely flexible;
  • efficiently moving assets to your heirs and beneficiaries; and
  • privacy.

Do you have an estate plan? Have you thought about a trust? I offer a free one-hour consultation,  please always feel free to email me at gordon@gordonfischerlafirm.com or call me at 515-371-6077.

What’s the most interesting estate planning-related word you’ve learned? Share it in the comments below!

Settlor (or Donor or Grantor)

The person who creates a trust is called the settlor (sometimes called the donor or grantor). It is the settlor’s intent which is of paramount importance. It is the intent of the settlor that determines whether a trust has been created.

Here’s a great read with a rundown on the basics of what a trust is:

Intent Is Everything

If a settlor transfers property to a recipient with the intent that the recipient hold the property for someone else, then a trust has indeed been created. If the settlor transfers property with the intent that the recipient use the property for her own benefit, then NO trust has been created.

BONUS WORD! Precatory Trust

What if a settlor transfers property to a recipient with just a wish that the recipient use the property for the benefit of someone else, but does not impose any legal obligation? In such a situation, no legal trust is created. Instead, this is called a precatory trust, but is not a trust at all, because the settlor placed no legal responsibilities on the recipient. A precatory trust is, again, not a trust and is not governed by the law of trusts.

Three Easy Hypotheticals

  • Let’s look at three quick examples to make this clear. Mack gives stock to Julie. Mack intends that the stock be for Julie’s own use. Mack is NOT the settlor of a trust, because no trust has been created.

Stock market sheet

  • Grace gives a vacation house to Maddie, intending that Maddie hold the house for the benefit of Zach. Grace is the settlor of a trust. If a settlor transfers property to a recipient with the intent the recipient holds the property for the benefit of someone else, then a trust is created.

vacation home on lake

  • Thomas gives a coin collection to Parker, just wishing that Parker would hold the coins for Danna. This is a mere precatory trust, not a trust at all because the settlor is not imposing any legal responsibilities on the recipient.

coin collection

Questions? Let’s Talk.

When it comes to estate planning, I’m all about breaking down the legalese barriers. This hopefully clarified the definition of settlor, but you may have questions…which is great! Contact me to discuss further the status of your estate plan and decisions regarding your trust. Reach me by email at gordon@gordonfischerlawfirm.com or phone at 515-371-6077.

number four on wood

We dove into the definition of the term “trust,” but that’s just the tip of the iceberg when it comes to learning about the important agreement that’s often used for purposes including estate tax liability reduction, estate property protection, and probate avoidance. There are four standard ways of classifying trusts.

Trust Classifications

handshake over table

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 helpful classification of trusts is comparing those which are revocable to trusts which are irrevocable.

Inter Vivos Trust

An inter vivos trust, also known as a living trust, may be either revocable or irrevocable. In a revocable trust, the grantor can retain control of the property, if the grantor so wishes, and the terms of the trust may be changed or even canceled. An irrevocable living trust, on the other hand, may not be changed or terminated after it is executed.

Testamentary Trust

A testamentary trust is most often a component of a will. The testamentary trust is created when the trustor passes away. The designated trustee then steps in and distributes or manages the assets of the trust according to the deceased’s wishes.

Revocable Trust

A revocable trust allows assets to pass outside of probate, yet allows you to retain control of the assets during your (the grantor’s) lifetime. It is flexible in that it can be dissolved at any time, should your circumstances or intentions change.

A revocable trust typically becomes irrevocable upon the death of the grantor. You can name yourself trustee, or co-trustee, and retain ownership and control over the trust, its terms, and assets during your lifetime. You may also make provisions for a successor trustee to manage them in the event of your death or incapacity.

Although a revocable trust allows you to avoid probate, it’s subject to estate taxes. It also means that during your lifetime, it is treated like any other asset you own.

Irrevocable Trust

An irrevocable trust typically transfers your assets out of your (the grantor’s) estate and potentially out of the reach of estate taxes and probate, but cannot be altered by the grantor after it has been executed. Therefore, once you establish the trust, you will lose control over the assets and you cannot change any terms or decide to dissolve the trust. An irrevocable trust is preferred over a revocable trust if your primary goal is to reduce the amount subject to estate taxes by effectively removing the trust assets from your estate. Also, since the assets have been transferred to the trust, you are relieved of tax liability on the income generated by the trust assets (although distributions to others may have income tax consequences). Trust assets in an irrevocable trust may also be protected in the event of a legal judgment against you

Let’s Get Started

You probably still have some questions on trusts…which is why I’m here! Don’t hesitate to contact me. 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 to take for success.

puzzle pieces

 What is a Grantor-Grantee Policy?

A grantor-grantee policy outlines how the organization expects the relationship with grantees (other organizations applying for funding or grants) to be structured. (Sometimes you’ll see this type of policy called a funder-grantee policy.) A grantor-grantee policy will address details related to the beginning of the grant application process through evaluation and multiple points in between. The intended audience is both your internal board of directors and staff as well as current/prospective grantees.

This type of policy often sets forth details regarding the complicated details that should allow for a better, more transparent relationship from the get-go with grantees. The policy can be as general or as specific as needed for maximized effectiveness to the organization’s specific situation. I’ll explain some of the “common” points often included in successful grantor-grantee policies below.

Benefits of a Grantor-Grantee Policy

By outlining the process and details of grants, your organization benefits from having an approved, agreed-upon plan of action. This is a proactive step toward avoiding wasting time. A grantor-grantee policy also makes it simpler to navigate unexpected situations or complexities as an organization.

Grantees will certainly benefit from a clear-cut, candid grantor-grantee policy as well because it invites them to set realistic expectations about what a relationship with your organization will look like.

Common Points to Include in a Grantor-Grantee Policy

When drafting grantor-grantee policies, it’s important that provisions included are directly related to your actual current and/or intended operations. (This is why it is important to have an attorney draft your policies as opposed to using something found off the internet—it probably won’t apply!) The following are some points you’ll want to consider as a part of a useful policy.

What basics should be included in the guidelines?

Consider details regarding:

  • How you want prospective grantees to approach your organization to submit an application or express interest. Is it by online application, email, letter, visit, etc.?
  • How quickly can prospective grantees expect a response to an initial inquiry or a submitted grant application? How will that contact be made?
  • What does the decision-making process look like? How often does the board meet, and when are decisions made?
  • You can also include here what you do NOT permit in terms of contact, meeting, or presentations by prospective grantees to avoid undue influence or even the appearance of unethical decision-making.
  • Are grants generally restricted, unrestricted, or on a case-by-case basis?

What is the timeline for funding?

  • Can applicants expect grants to be made on a rolling basis or are there specific deadlines?
  • What about the chance for grant renewals? When do those take place?

What are the types of proposals and information are you looking for?

Potential grantees will appreciate upfront information to decide whether to invest scarce resources and considerable time in an application for your organization. This invites a healthy amount of self-screening which enables you to evaluate the most appropriate applications. Consider these essential points:

  • Who is your ideal grantee? Do they need to operate in a certain location or within a specific realm of charitable purpose (such as, through work with animals, human services, or education)?
  • What are your preferred areas of funding? Some preferred funding areas can include: equipment; operating support; special programs/projects; financial stabilization; board/staff development; and capital projects. Will you accept proposals from outside your preferred areas or not at all?
  • What types of funding requests will you NEVER accept?
  • What qualifications and information will you consider in applications?
  • Do you want to give examples of previous grant applications you have funded? Do you want to list all grants made in the previous funding cycle in the policy or perhaps elsewhere (like on your website) or not at all?

What are the specifics of the grant application?

The grantor-grantee policy is not where your grant application should live, but important details about the application should be included. For instance:

  • What will you do to keep the application process reasonable? For instance, asking an applicant to make 10 copies for each individual board member may be unreasonable.
  • Where will the application be made available (online, in-person at the office, etc.) and in what formats (Word document; fillable PDF; etc.)?
  • How often will the grant application process and instructions be reviewed for inconsistencies and clarity? Once a year? Before any given application cycle?

What are the granting process logistics?

  • What is expected of grantees to confirm acceptance?
  • How will funds be distributed—at a specific check presentation event, through electronic transfer, or some other means?

hands in teamwork

How will the organization invite feedback?

Most grantees will not offer invaluable feedback unsolicited. Your organization may want to highlight how and when it will seek productive criticisms for continued growth.

You may not know an adjustment needs to be made until another organization tells you! How will you invite constructive feedback from current and prospective grantees regarding your funding application process? How will make certain it is seen as welcome and important?

What about an exit strategy?

Organizations evolve and priorities change. What does the process look like for informing grantees of a transition away from funding? Certainly, grantees should not expect support for forever, but they should expect respect and clarity when it comes to a grantor planning to pull support. Ample time and notification should be given, as well as the option for support in other ways (if applicable).

How about opportunities for collaboration?

In addition to or apart from funding, what are other ways you invite collaboration with past/current/future grantees? Beyond money, additional chances for working together can further strengthen community connections and enhance mutually beneficial partnerships.

Drafting Your Policies

I would be happy to discuss the particulars of your organization’s needs and goals to ensure your grantor-grantee policy is tailormade to best set your organization up for granting success. Contact me at any time via email (gordon@gordonfischerlawfirm.com) or by phone (515-371-6077).

In my ongoing efforts to break down the legalese barriers that tend to separate lawyers from the real world, and have increased quality communication, here’s another Fun with Legal Words post. Today’s word is “trust.”

In this context, and in the simplest terms, a trust is a legal agreement between three parties: settlor, trustee, and beneficiary. Let’s look at each of these three parties, and then delve more into how a trust works.

Settlor

All trusts have a settlor, sometimes called the “donor” or “trustor.” The settlor 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 settlor 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 hasn’t been set up yet).

Trust Property

A trust can be either funded or unfunded. By funded, we mean that trust property has been placed “inside” the trust. This property is sometimes called the “principal” or the “corpus.” A trust is unfunded until property are transferred into your name as trustee of the trust.

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, and vehicles.

“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 something (such as a garage protects your car), but a form of ownership that holds it for your benefit. For instance, on your car title the owner blank would read “The John Smith Trust.” It’s common to put real estate (farms, homes, vacation condos) and entire accounts (savings, checking, 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… The only difference is the property will have a different owner: “The Jane Jones Trust,” not Jane Jones.

imaginary container

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

Types of Trusts Almost Limitless

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.

Benefits of Trusts

The potential benefits of trusts are immense. The benefits include avoiding probate (and other costs savings), privacy, and helping with every family’s unique needs. 

Avoid Probate

A major benefit of trusts is avoiding probate. This is because, upon death, the trust dictates how trust property will pass. Avoiding probate saves your loved ones both time and money as the probate process is time-consuming, taking anywhere from several months to a year to complete. Sometimes, depending on the size of the estate, it can take even longer. Probate can also be expensive. Attorney’s fees alone can amount to two percent of the total estate, or even more in extraordinary cases. For some, two percent of their assets can be a very high number. Often, the cost of creating a trust is considerably less expensive than the cost of probate would have been.

Privacy

When a will is filed with an Iowa court upon death, the will becomes a public record. Trusts, on the other hand, remain private documents. Many folks, especially in small towns, have a strong desire to keep business affairs private.

Second Marriages and Blended Families

dad swinging children on beach

Trusts are also helpful in situations involving second marriages or blended families. When married couples have children from previous relationships, the surviving spouse has the ability to disinherit stepchildren. A trust can remedy this situation by providing lifetime benefits to the surviving spouse but, after his or her death, leaving assets to children and stepchildren.

Special Needs Trusts

Families with members who have special care needs must take a careful estate planning approach. For example, when a person receives government assistance due to a disability, a gift or inheritance might result in denial of benefits. However, assets can be left in certain types of trusts (for example, a special needs trust), to provide for supplemental needs while still allowing persons with disabilities to continue to receive benefits.

Let’s Get Started

You probably still have some questions on trusts…which is why I’m here! Don’t hesitate to contact me. 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 to take for success.

A trust really isn’t as complicated as it first may seem. After all, there are only three parties to a trust.

A Settlor, Trustee, & Beneficiary

A trust is created when a property owner transfers the property to a person with the intent that the recipient holds the property for the benefit of someone else. So, there are three parties to a trust: (1) the owner who transfers the property (the settlor, or sometimes called the donor or grantor); (2) the person receiving the property (the trustee); and (3) the person for whose benefit the property is being held (the beneficiary).

Three men walking down the street

Note that although a trust involves three parties, it does not require three persons. One person can play multiple roles. For example, in a typical revocable inter vivos trust, it is quite common for the person establishing the trust to be the initial trustee and the principal beneficiary. In this situation, one person is all three parties – they are the settlor, the trustee, and the beneficiary.

What a Merger Means

There is one limitation to the rule of one person wearing multiple hats. The same person cannot be the sole trustee and the sole beneficiary of the trust. In such an event, it is said merger occurs, and the trust is terminated. Why so? The essence of a trust is that it divides legal title from beneficial ownership, and merger ends this division.

In practical terms, however, merger is rarely an issue. “Wait!” you shout. You just said that in a typical revocable inter vivos trust, the person establishing the trust can be trustee and beneficiary. Yes, in this situation one person is all three parties – she is the settlor, the trustee, and the beneficiary. But, in almost all situations, one person isn’t the sole beneficiary. Such a trust will designate other beneficiaries who will benefit from the property after the settlor’s death. So, one person can indeed wear three hats.

Let’s Talk More About Trusts

Trusts aren’t that difficult to understand and also can provide so many helpful benefits. Want to learn more? 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.

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.