What is a trust?
A trust is where property is transferred in such a way that one person has control of the property while another person gets the benefit of that property.

 

There are two different aspects to owning property - the so-called legal title and the equitable title. Generally, when you own property, you have both of these titles in the property, which means that you own the property outright and can do whatever you want with it. However, there is no requirement that both of these titles be held by the same person. For example, I may own the legal title to a house while you own the equitable title. By owning the equitable title, you are entitled to the use and benefit of the house, and by owning the legal title, I have a duty to care for, maintain and control the house. Similarly, I may own the legal title to a bank account, while you own the equitable title. While you are entitled to use the money in that account, I am responsible for giving you access to that money.

 

A trust, creating such a split between the titles in property, is useful where you want to give property to someone but you want to have some restrictions or limitations on it, as opposed to giving them unfettered use and access. For example, rich parents often set up trust funds for their children, requiring their children to comply with certain conditions to get access to portions of the money, rather than simply dumping a large amount of money into their childrens' laps.

 

The person who creates the trust is known as the settlor or donor, the person who gets the legal title (control of the property) is known as the trustee, and the person who gets the equitable title (the use and enjoyment of the property) is known as the beneficiary.

 

What is the purpose of a trust?
The purpose of a trust is essentially to provide someone with the benefits of certain property while, at the same time, protecting them from themselves and limiting or conditioning how they can use the property. For example, a trust would be very useful if you wanted to give money or other property to a minor, who may not have the maturity or even the legal capacity to control and manage the property. In addition, trusts allow for someone else to manage the property, which can be useful when the property management requires time and/or skill (such as managing a large stock portfolio or several real estate properties). Finally, when property is put into a trust, it keeps that property out of probate, because the property is no longer belongs to the settlor (the creator of the trust).

 

How is a trust created?
While a written document is not always required to create a trust, it is generally a good idea to always create a trust with a written document. If you are creating a trust that is going to go into effect while you are alive (which is known as an inter vivos trust), you can do this by a declaration of trust or a transfer in trust. If, instead, you are creating a trust that you do not want to go into effect until after you die, you would create a testamentary trust by including the trust terms in a legally valid will.

 

As for what should be included in the document creating the trust, it must identify one or more beneficiaries who are being granted equitable title in the property - that is, the person or people who you want to have the use and enjoyment of the property. The beneficiary must be identified in a way that it is clear who he or she is, or it is easy to figure out - if the designation of the beneficiary is too vague, the trust will be deemed void and invalid. The trust document must also identify one or more trustees who are being granted legal title in the property - that is, the person or people who you want to have control and management of the property. Finally, your trust document should include a statement as to the trust's purpose (which cannot be illegal) and it should be clear that you are intending this to document to create a trust.

 

What is a beneficiary of a trust?
A beneficiary is the person who is granted the equitable title of some property, meaning that they get to enjoy the benefits and use of the property but have no control of the property. The trustee, who is given legal title of the property, maintains control of the property for the benefit of the beneficiary. There may be more than one beneficiary to a trust, and unless the trust specifies otherwise, each beneficiary has equal rights to the trust property.

 

Can a trust be modified?
In limited situations, a trust can be modified. This modification can be done by the court, or by the parties themselves.

 

How can a trust be terminated?
Trusts often contain their own express terms as to when they terminate. These terminations are often tied to the occurrence of some event or some particular date. For example, I may set up a trust to provide money to my son until he turns 25, and the trust may say that once he is 25, the trust is terminated and he gets the rest of the money. In addition, where the creator of the trust (the settlor) is still alive, and where he or she is permitted to modify the trust by state law and/or the provisions of the trust itself, he or she can revoke the trust which terminates it.

 

Beneficiaries often want to terminate a trust early because they hope to get all of the trust property without any of the trust restrictions. They can go to court and ask the court to prematurely terminate the trust, but courts are rarely willing to do this, and generally will only do so if the original purpose of the trust is no longer capable of being met.

Finally, trusts can also be terminated on their own when there is a merger (which is where all of the equitable title and legal title rights belong to one person).

 

What happens if there is a dispute over a trust?
Obviously, when someone creates a trust, they hope that everything will run smoothly and there will not be any problems. Unfortunately, this is often not the case, and disputes frequently arise between the beneficiaries and trustees. The most typical type of dispute is where a beneficiary or co-trustee believes that a trustee is intending to violate the terms of a trust, or that he or she has already violated the trust by not properly performing his or her duties. Where they cannot resolve the issue on their own, they will have to file a lawsuit and seek relief from the court. In limited circumstances, such a lawsuit can even be filed by someone who is not a trustee or beneficiary.

 

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