Now the question becomes: should you have a will or living trust? It is estimated that only about 20% of Americans have living trusts. So should you join that
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If you and your spouse create a trust together, you will be co-trustees. In the trust document, you name the people or institutions you want to inherit trust property after your death. You can change those choices if you wish; you can also revoke the trust at any time. When you die, the person you named in the trust document to take over--called the successor trustee--transfers ownership of trust property to the people you want to get it.
In most cases, the successor trustee can handle the whole thing in a few weeks with some simple paperwork. Tax-Saving Trusts First, the good news: But if you or you and your spouse expect to own that much property, consider creating a living trust that will both avoid probate and also save on federal estate tax. If you don't, there may be a big estate tax bill when the second spouse dies.
That's because the survivor's estate includes his or her share of the couple's property plus the property inherited from the deceased spouse. If you can't leave your spouse property without also saddling his or her estate with a large tax bill, one obvious alternative is to leave much of your property directly to your children or other beneficiaries. But most people want to provide financial security for the surviving spouse--which may not be possible if they leave much property to others. However, this stipulation means the assets in the trust remain a part of the trust settlor's estate, meaning the individual may still be liable for estate taxes should the estate be valued beyond the estate tax exemption at the time of death.
The trust settlor also has the power to change and amend trust rules at any time. This means the trust settlor is free to change beneficiaries or undo the trust all together.
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With an irrevocable living trust, the settlor relinquishes certain rights to control over the trust. The trustee effectively becomes legal owner, but the individual would also reduce his or her taxable estate. A living trust itself can be named the beneficiary of certain assets which would otherwise flow directly to the named beneficiary regardless of what is stated in a will.
What is a 'Living Trust' A living trust is a type of trust created during a person's lifetime. A naked trust is a basic, simple type of trust into which a trustor A pour-over will ensures any of an estate's assets not already However, Crusaders often encountered refusal to hand over the property upon their return.
Unfortunately for the Crusader, English common law did not recognize his claim. As far as the King's courts were concerned, the land belonged to the trustee, who was under no obligation to return it. The Crusader had no legal claim. The disgruntled Crusader would then petition the king, who would refer the matter to his Lord Chancellor.
The Lord Chancellor could decide a case according to his conscience. At this time, the principle of equity was born.
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The Lord Chancellor would consider it "unconscionable" that the legal owner could go back on his word and deny the claims of the Crusader the "true" owner. Therefore, he would find in favour of the returning Crusader. Over time, it became known that the Lord Chancellor's court the Court of Chancery would continually recognize the claim of a returning Crusader. The legal owner would hold the land for the benefit of the original owner and would be compelled to convey it back to him when requested.
The Crusader was the "beneficiary" and the acquaintance the "trustee". The term "use of land" was coined, and in time developed into what we now know as a trust. The trust is widely considered to be the most innovative contribution of the English legal system. Trusts are widely used internationally, especially in countries within the English law sphere of influence, and whilst most civil law jurisdictions do not generally contain the concept of a trust within their legal systems, they do recognise the concept under the Hague Convention on the Law Applicable to Trusts and on their Recognition partly only the extent that they are parties thereto.
The Hague Convention also regulates conflict of trusts.
Although trusts are often associated with intrafamily wealth transfers, they have become very important in American capital markets, particularly through pension funds in certain countries essentially always trusts and mutual funds often trusts. Property of any sort may be held in a trust. The uses of trusts are many and varied, for both personal and commercial reasons, and trusts may provide benefits in estate planning , asset protection , and taxes. Living trusts may be created during a person's life through the drafting of a trust instrument or after death in a will.
In a relevant sense, a trust can be viewed as a generic form of a corporation where the settlors investors are also the beneficiaries. This is particularly evident in the Delaware business trust, which could theoretically, with the language in the " governing instrument ", be organized as a cooperative corporation or a limited liability corporation, [10]: One of the most significant aspects of trusts is the ability to partition and shield assets from the trustee, multiple beneficiaries, and their respective creditors particularly the trustee's creditors , making it " bankruptcy remote ", and leading to its use in pensions, mutual funds, and asset securitization [10] as well protection of individual spendthrifts through the spendthrift trust.
Trust law - Wikipedia
Trusts may be created by the expressed intentions of the settlor express trusts [11] or they may be created by operation of law known as implied trusts. An implied trust is one created by a court of equity because of acts or situations of the parties.
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Implied trusts are divided into two categories: A resulting trust is implied by the law to work out the presumed intentions of the parties, but it does not take into consideration their expressed intent. A constructive trust [12] is a trust implied by law to work out justice between the parties, regardless of their intentions. In some jurisdictions certain types of assets may not be the subject of a trust without a written document.
Generally, a trust requires three certainties, as determined in Knight v Knight:. A trust may have multiple trustees, and these trustees are the legal owners of the trust's property, but have a fiduciary duty to beneficiaries and various duties, such as a duty of care and a duty to inform.
The trustee may be either a person or a legal entity such as a company , but typically the trust itself is not an entity and any lawsuit must be against the trustees. A trustee has many rights and responsibilities which vary based on the jurisdiction and trust instrument. If a trust lacks a trustee, a court may appoint a trustee. The trustees administer the affairs attendant to the trust.
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The trust's affairs may include prudently investing the assets of the trust, accounting for and reporting periodically to the beneficiaries, filing required tax returns and other duties. In some cases dependent upon the trust instrument, the trustees must make discretionary decisions as to whether beneficiaries should receive trust assets for their benefit. A trustee may be held personally liable for problems, although fiduciary liability insurance similar to directors and officers liability insurance can be purchased.
For example, a trustee could be liable if assets are not properly invested. In addition, a trustee may be liable to its beneficiaries even where the trust has made a profit but consent has not been given. In the United States, the Uniform Trust Code provides for reasonable compensation and reimbursement for trustees subject to review by courts, [20] although trustees may be unpaid.
The beneficiaries are beneficial or 'equitable' owners of the trust property. Either immediately or eventually, the beneficiaries will receive income from the trust property, or they will receive the property itself. The extent of a beneficiary's interest depends on the wording of the trust document. One beneficiary may be entitled to income for example, interest from a bank account , whereas another may be entitled to the entirety of the trust property when he attains the age of twenty-five years. The settlor has much discretion when creating the trust, subject to some limitations imposed by law.
The beneficiaries are jocosely known as "trust fund babies" or "trustafarians". Trusts go by many different names, depending on the characteristics or the purpose of the trust. Because trusts often have multiple characteristics or purposes, a single trust might accurately be described in several ways.
For example, a living trust is often an express trust, which is also a revocable trust, and might include an incentive trust, and so forth. Trusts originated in England, and therefore English trusts law has had a significant influence, particularly among common law legal systems such as the United States and the countries of the Commonwealth.
Living Trust FAQ
Trust law in civil law jurisdictions , generally including Continental Europe only exists in a limited number of jurisdictions e. The trust may however be recognized as an instrument of foreign law in conflict of laws cases, for example within the Brussels regime Europe and the parties to the Hague Trust Convention. Tax avoidance concerns have historically been one of the reasons that European countries with a civil law system have been reluctant to adopt trusts.