Trusts serve two main purposes. They are used in estate planning to make sure that assets go to the right hands after death, such as to your spouse or children. A trust is also useful for tax planning. The use of a trust offers lower tax consequences than a will or other forms of estate planning. Having one has become the norm in estate planning. Here’s why. A trust may be the best way to make sure that your assets go to the right people.
Trustees have fiduciary duties to their beneficiaries. These duties include loyalty, prudence, and impartiality. They may also be held to a high standard of care. They must ensure that the trust is being administered appropriately, and they must keep good accounting records. They must also comply with applicable laws. And, because trustees can be held accountable for their actions, they must have a legal capacity to act in the best interest of the beneficiaries.
When you create a trust, the children of the settlor will be alive. This information is relevant for vesting. The children are also helpful when measuring lives. For example, a grandchild’s interest cannot vest if it hasn’t been 21 years since the last surviving child died. A trust’s purpose is to protect individuals and their assets from creditors. Ultimately, this type of planning allows an individual to make decisions without compromising their financial security.
In contrast, a hybrid trust combines elements of both a discretionary and fixed trust. The trustee of a hybrid trust must pay a fixed amount of money to each beneficiary, but retains discretion over the rest of the trust’s property. If your spouse dies before you, the Q-TIP trust would receive the assets and not be included in the grantor’s estate. The Q-TIP trust can even coordinate with government programs.
While the use of a trust is not limited to transferring property, it can also be used for business purposes. If you’re trying to pass on your farm income or land to your children, a trust might be the way to go. Trusts are also useful when you want to protect your assets from creditors or beneficiaries with poor money management skills. You can even create a living trust or a posthumous trust after you die.
In a trust, the settlor must be clear about what type of property the trust has. This is done with precatory language. For example, a trust can be a written document that says that the settlor wants the trustee to manage the trust property for the benefit of the beneficiaries. It can be real property, shares, cash, or intangible assets. These are just a few examples.
One important thing to keep in mind about trustees is that the trustees must have the capacity to manage the trust. In a case like Farkas v. Norfolk Southern Railway, a settlor can serve as both a beneficiary and a trustee. The rules for dual role beneficiaries are more complicated. A sole beneficiary cannot act as a trustee, as this would give them absolute ownership of the property.