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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!

animal care trust dog in lap

This current series leading up to Valentine’s Day is all about love and how that love can translate to estate planning. Thus far we’ve covered the best V-Day gift to give your spouse, advice on where to store your estate plan (and it’s not a chocolate heart box!), and how an affinity for football makes understanding estate planning easy. Romance and gift guides aside, this #PlanningForLove series would be incomplete without featuring the love for your pet.

Let’s be for real for a minute. The relationships we have with our pet(s), be they a dog, cat, amphibian, pocket piglet, parrot, or pony are some of the most comforting and consistent. Who else will lick your face, eat snacks out of your hand, demand belly rubs, or get the most Instagram likes? Our pets are a part of our family and it only makes sense to include them in estate planning documents and decisions concerned with the continued care for our loved ones.

 

cat with flowers

The best way to include your furry and feathered friends in your estate plan is with an animal care trust (sometimes known as a pet trust). This is a special kind of trust different from a living revocable trust or an inter vivos trust. An animal care trust specifically provides for the care of your pet in the event that something were to happen to you. In the trust you’ll likely want include the following information:

  • Sufficiently identify your pets and include a provision that describes your pets as a class through phrasing such as  “the pet(s) owned by me at the time of my death or disability.”
  • Describe your pet’s standard of living, care, and include any regular and special instructions. You can get as specific or general as you want at this point. For example, if your bird only likes a particular brand/type of food, or your dog thrives when she plays catch once a day, this can be specified in a trust agreement. If you want your pet to visit the veterinarian for check-ups three times a year, this can also be written in.
  • Determine the amount of funding that’s needed to adequately cover the expenses for your pet’s care. Generally, this figure can’t exceed what may reasonably be required given your pet’s standard of living.
  • Designate a trustee, caregiver, and remainder beneficiary. Also designate successor trustees and caregivers if for some reason either becomes unable or unwilling to fulfill their role. The remainder beneficiary is who receives the trust assets if trust funding outlives the beneficiary (your pet).
  • Specify how the funding should be distributed to the caregiver from the trust.
  • Provide instructions and wishes for the final disposition of your pet (for example, via burial or cremation).

Check out and feel free to share this infographic with your fellow pet parents. (Click here to download the pdf version.)

 

gordon fischer law firm animal care trust

Valentine’s Day is coming up, so let’s discuss how to show your continued love for your pets even if something were to happen to you. Contact me via email of phone (515-371-6077).

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.

Woman with hat

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.