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.99centmillTRUSTINFOLEGALMATTERS

.99centmillTRUSTINFOLEGALMATTERS

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Published by Vincent Finney II

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Categories:Types, Research
Published by: Vincent Finney II on Oct 26, 2010
Copyright:Attribution Non-commercial

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08/03/2011

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In common law legal systems, a trust is a relationship whereby property (including real, tangible and intangible) is managed by one person (or persons, or organizations) for the benefit of another. A trust is created by a settlor (or feoffor to uses), who entrusts some or all of their property to people of their choice (the trustees or feoffee to uses). The trustees hold legal title to the trustproperty (or trust corpus), but they are obliged to hold the property for the benefit of one or more individuals or organizations (the beneficiary, cestui que use, or cestui que trust), usually specified by the settlor, who hold equitable title. The trustees owe a fiduciary duty to the beneficiaries, who are the "beneficial" owners of the trust property.The trust is governed by the terms of the trust document, which is usually written and occasionally set out in deed form. It is also governed by local law. Thetrustee is obliged to administer the trust in accordance with both the terms ofthe trust document and the governing law.In the United States, the settlor is also called the trustor, grantor, donor orcreator. In some other jurisdictions, the settlor may also be known as the founder.Basic principlesProperty of any sort may be held on trust, but growth assets are more commonly placed into trust (for tax and estate planning benefits). The uses of trusts aremany and varied. Trusts may be created during a person's life (usually by 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, limited liability corporation, or perhaps even a nonprofit corporation.[3]:475-6 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.[3][edit] CreationTrusts may be created by the expressed intentions of the settlor (express trusts) or they may be created by operation of law (resulting trusts).Typically a trust is created by one of the following:1. a written trust document created by the settlor and signed by both the settlor and the trustees (often referred to as an inter vivos or "living trust");2. an oral declaration;[6]3. the will of a decedent, usually called a testamentary trust; or4. a court order (for example in family proceedings).In some jurisdictions certain types of assets may not be the subject of a trustwithout a written document.[7][edit] FormalitiesGenerally, a trust requires three certainties, as determined in Knight v Knight:1. Intention. There must be a clear intention to create a trust (Re Adams andthe Kensington Vestry)2. Subject Matter. The property subject to the trust must be clearly identified (Palmer v Simmonds). One may not, for example, settle "the majority of my est
 
ate", as the precise extent cannot be ascertained. Trust property may be any form of specific property, be it real or personal, tangible or intangible. It is often, for example, real estate, shares or cash.3. Objects. The beneficiaries of the trust must be clearly identified, or atleast be ascertainable (Re Hain's Settlement). In the case of discretionary trusts, where the trustees have power to decide who the beneficiaries will be, the settlor must have described a clear class of beneficiaries (McPhail v Doulton). Beneficiaries may include people not born at the date of the trust (for example,"my future grandchildren"). Alternatively, the object of a trust could be a charitable purpose rather than specific beneficiaries.[edit] TrusteesThe trustee may be either a person or a legal entity such as a company. A trustmay have one or multiple trustees. A trustee has many rights and responsibilities; these vary from trust to trust depending on the type of the trust. A trust generally will not fail solely for want of a trustee. A court may appoint a trustee, or in Ireland the trustee may be any administrator of a charity to which thetrust is related. Trustees are usually appointed in the document (instrument) which creates the trust.A trustee may be held personally liable for certain problems which arise with the trust. For example, if a trustee does not properly invest trust monies to expand the trust fund, he or she may be liable for the difference. There are two main types of trustees, professional and non-professional. Liability is different for the two types.The trustees are the legal owners of the trust's property. The trustees administer the affairs attendant to the trust. The trust's affairs may include investingthe assets of the trust, ensuring trust property is preserved and productive for the beneficiaries, accounting for and reporting periodically to the beneficiaries concerning all transactions associated with trust property, filing any required tax returns on behalf of the trust, and other duties. In some cases, the trustees must make decisions as to whether beneficiaries should receive trust assets for their benefit. The circumstances in which this discretionary authority isexercised by trustees is usually provided for under the terms of the trust instrument. The trustee's duty is to determine in the specific instance of a beneficiary request whether to provide any funds and in what manner.By default, being a trustee is an unpaid job. In modern times trustees are oftenlawyers or other professionals who cannot afford to work for free. Therefore, often a trust document will state specifically that trustees are entitled to reasonable payment for their work.[edit] BeneficiariesThe 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.[edit] PurposesCommon purposes for trusts include:1. Privacy. Trusts may be created purely for privacy. The terms of a will arepublic and the terms of a trust are not. In some families this alone makes useof trusts ideal.
 
2. Spendthrift Protection. Trusts may be used to protect beneficiaries (for example, one's children) against their own inability to handle money. It is not unusual for an individual to create an inter vivos trust with a corporate trusteewho may then disburse funds only for causes articulated in the trust document.These are especially attractive for spendthrifts. In many cases a family memberor friend has prevailed upon the spendthrift/settlor to enter into such a relationship. However, over time, courts were asked to determine the efficacy of spendthrift clauses as against the trust beneficiaries seeking to engage in such assignments, and the creditors of those beneficiaries seeking to reach trust assets.A case law doctrine developed whereby courts may generally recognize the efficacy of spendthrift clauses as against trust beneficiaries and their creditors, but not against creditors of a settlor.3. Wills and Estate Planning. Trusts frequently appear in wills (indeed, technically, the administration of every deceased's estate is a form of trust). A fairly conventional will, even for a comparatively poor person, often leaves assets to the deceased's spouse (if any), and then to the children equally. If the children are under 18, or under some other age mentioned in the will (21 and 25 are common), a trust must come into existence until the contingency age is reached. The executor of the will is (usually) the trustee, and the children are the beneficiaries. The trustee will have powers to assist the beneficiaries during their minority.[8]4. Charities. In some common law jurisdictions all charities must take the form of trusts. In others, corporations may be charities also, but even there a trust is the most usual form for a charity to take. In most jurisdictions, charities are tightly regulated for the public benefit (in England, for example, by theCharity Commission).5. Unit Trusts. The trust has proved to be such a flexible concept that it has proved capable of working as an investment vehicle: the unit trust.6. Pension Plans. Pension plans are typically set up as a trust, with the employer as settlor, and the employees and their dependents as beneficiaries.7. Remuneration Trusts. Trusts for the benefit of directors and employees orcompanies or their families or dependents. This form of trust was developed by Paul Baxendale-Walker and has since gained widespread use.[9]8. Corporate Structures. Complex business arrangements, most often in the finance and insurance sectors, sometimes use trusts among various other entities (e.g. corporations) in their structure.9. Asset Protection. The principle of "asset protection" is for a person to divorce himself or herself personally from the assets he or she would otherwise own, with the intention that future creditors will not be able to attack that money, even though they may be able to bankrupt him or her personally. One method of asset protection is the creation of a discretionary trust, of which the settlor may be the protector and a beneficiary, but not the trustee and not the sole beneficiary. In such an arrangement the settlor may be in a position to benefit from the trust assets, without owning them, and therefore without them being available to his creditors. Such a trust will usually preserve anonymity with a completely unconnected name (e.g. "The Teddy Bear Trust"). The above is a considerable simplification of the scope of asset protection. It is a subject which straddles ethical boundaries. Some asset protection is legal and (arguably) moral, while some asset protection is illegal and/or (arguably) immoral.10. Tax Planning. The tax consequences of doing anything using a trust are usually different from the tax consequences of achieving the same effect by anotherroute (if, indeed, it would be possible to do so). In many cases the tax consequences of using the trust are better than the alternative, and trusts are therefore frequently used for legal tax avoidance.For an example see the "nil-band discretionary trust", explained at Inheritance Tax (United Kingdom).11. Tax Evasion. In contrast to tax avoidance, tax evasion is the illegal concealment of income from the tax authorities. Trusts have proved a useful vehicleto the tax evader, as they tend to preserve anonymity, and they divorce the settlor and individual beneficiaries from ownership of the assets. This use is particularly common across borders
a trustee in one country is not necessarily bound to

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