Posts

man reading newspaper

If spelling tests weren’t always your strong suit in school, fear not! Today’s legal word of the day is an easy one that’s having a momentary editorial heyday.

Ripped From the Headlines

As you probably heard, The New York Times took the highly unusual step of publishing an unsigned, anonymous op-ed entitled, “I am Part of the Resistance Inside the Trump Administration.” The person was identified only as follows:

“…. a senior official in the Trump administration whose identity is known to us and whose job would be jeopardized by its disclosure. We believe publishing this essay anonymously is the only way to deliver an important perspective to our readers.”

man with newspaper near train

Whodunnit?

The article led to a nationwide guessing game. Who is the senior official in the Trump administration who penned this “explosive” piece? Suspicion fell onto, of all people, Vice President Mike Pence. This is because the op-ed writer uses the word “lodestar,” and Pence has used this obscure word multiple times. (Pence vehemently denied he was the author, by the way.)

I don’t know who wrote the op-ed, and we may never know, but the real winner out of this news cycle is the word you never knew you needed in your vocabulary—lodestar!

So, What DOES Lodestar Mean?

Lodestar means “a star that leads or guides,” and is especially used in relation to the North Star.

timelapse of stars

Now, Let’s Talk About a Similar Kind of “Star”

At this point you’re like, “Gordon, this is a cool word I can def use in playing Scrabble, but what does it have to do with the law?”

Well, “lodestar” is a synonym and practically interchangeable with the word “polestar,” which is defined as a “directing principle; a guide.”

A court will use the term polestar like so: In this case, our polestar must be this principle . . .

Basically the court will use such-and-such as its guiding principle.

direction sign on a mountain

For example, in the law of wills, the Iowa Supreme Court stated In the Estate of Twedt that “the testator’s [maker of the will’s] intent is the polestar and if expressed must prevail.” You’ll see the same in the law of trusts, the intent of the settlor of a trust must be the polestar.

The word is also used in the law of charitable giving. The intent of the donor is the polestar which courts must follow if there are any issues. For example, suppose a donor posthumously donates $100,000 to a nonprofit, but the nonprofit no longer exists. What was the donor’s intent? Is it stated anywhere what the donor wanted to happen to the charitable funds if the nonprofit was no more? If not written, did the donor discuss the matter with anyone? To resolve any dispute involving a charitable gift, the guiding principle–the polestar–must be the donor’s intent.

Practical application of the Word Polestar

A major reason to have an estate plan is that YOU get to control your own future, rather than being controlled by outside forces or outside events. Through proper estate planning, you can be in total control of the answers to the following questions:

And if there are any questions or issues regarding your estate plan, lawyers and judges looking at your estate plan will make decisions based on YOUR intent. Your intent will be the polestar!

Don’t delay any longer – thank your lucky (North) stars you still have time to make a proper estate plan. I’d be happy to talk with you about your estate plan any time, or you can get started on organizing your important info in my free Estate Plan Questionnaire. I can be reached via email (gordon@gordonfischerlawfirm.com) or by cell (515-371-6077). I’d truly love to hear from you.

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.

hammers and tools hanging in garage

Three Parties

I’ve previously written about the three parties necessary for every trust: (1) the settlor (sometimes called the donor or grantor); (2) the trustee; and (3) the beneficiary.

Two Other Elements

Besides three parties, at least two other elements are necessary for a valid trust.

  1. The trust instrument is the document that sets forth the terms of the trust.
  2. The other necessary element is property. After all, the trustee must be holding something for the benefit of the beneficiary.

Property of the Trust

When laypersons use the word “property,” I believe they usually mean real estate. But, lawyers use the term “property” much, much more broadly, to mean literally any transferable interest. Sometimes trust property is also referred to as the res or corpus or assets of the trust. (Bonus words!)

Any property can be held in trust. Seriously, check out this list of 101 assets which would fit in a trust. You could likely think of literally hundreds more types or categories of property to place in your own individual trust.

Pour Over Trust

How about an unfunded trust that will receive property at some point in the future? Can you even do that?

Yes, that can certainly be done. This is usually called a pour over trust. (More bonus words!) The pour over trust deserves its own blog post. Briefly, a pour over trust is usually set up by language in a will. A will may validly devise property to a trust, established during the testator’s lifetime, and then funded at her death.

Example

Let’s take a very simple example. Kate has a lawyer write her will, including language that at her death all her Monster Truck memorabilia be placed in a trust for the benefit of her nieces and nephews. Only at Kate’s death will the property be transferred into the trust, not before.

monster truck as a type of property

Take Aways

The important points are that property is necessary, at some point, to make a trust valid, and that literally any transferable interest in property – anything! – can be held in a trust.

Let’s Talk Trusts

It can be difficult to determine on your own if a trust may be right for your personal situation. It certainly doesn’t hurt to take me up on my offer for a free one-hour consultation. Give me a call at 515-371-6077 or shoot me an email at gordon@gordonfischerlawfirm.com.

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.

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. Mackensie gives stock to Julie. Mackensie intends that stock be for Julie’s own use. Mackensie is NOT the settlor of a trust, because no trust has been created.

Stock market sheet

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

Vacation home in Santorini Greece

  • Mackensie gives a coin collection to Parker, just wishing that Parker would hold the coins for Tom. 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.

This hopefully clarified the important role of settlor 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 decisions regarding your trust. Reach me by email at gordon@gordonfischerlawfirm.com or phone at 515-371-6077.