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A trust is a means of protecting your assets and providing for your loved ones after you have passed away. A trust is an alternative to a will, and you can avoid probate court with a trust. A trust does not have to be as formal as a will (in the sense that witnesses are not required, and a signed writing is not required). However, the intent to set up a trust is required. A private trust is different from a charitable trust in that the beneficiaries do not have to be named in a charitable trust.

The person wishing to set up the trust is called the settlor. The settlor will name one or several trustees who will manage, account, and distribute the funds generated from the trust. The trustee, who has equitable title, can sell property as he sees fit to the benefit of the beneficiaries. The trustee can be a corporation that specializes in wealth management or can be an individual who has a close relationship with the settlor. The settlor will also name one or more beneficiaries. The beneficiaries, who have actual title, are the ones who will benefit from the trust. The beneficiaries can be specifically named or can be referred to as blood descendants. Naming the beneficiaries something vague like “my friends” would not be acceptable.

A common trust is the revocable inter vivos trust. This trust is made by the settlor while he is still alive, and he can take back, destroy, or change the terms of the trust as long as he is alive; it is possible that the settlor is also the trustee until the settlor passes away. The beneficiaries do not have a claim to any benefit from the assets held in trust until the settlor has passed away. Assets held in trust can include real property, stocks and bonds, or currency. It is the duty of the trustee to manage these assets to generate the most income. For example, if there is liquid currency held in trust, the trustee might decide that the most beneficial thing to do with that cash is to invest it in something else. The terms of the trust cannot be modified, and the trust cannot be canceled unless all beneficiaries have agreed and the settlor’s material purpose of the trust has been fulfilled or a change is necessary to fulfill the settlor’s material purpose.

Trusts are generally created in two ways. First, they can be made by the settlor through his or her expressed intention. Second, “implied trusts” can be created by the court if certain situations arise. A resulting implied trust is a trust that takes into consideration the supposed intentions of the settlor when the settlor actually expresses something different in his or her trust. Situations like this can arise when a mistake is clearly made because of a misunderstanding of the legal system on the part of the settlor.

Trusts can be created through the settlor writing the trust out with his or her intentions listed and the trustee signing the document. A trust can also be created through oral declaration, through a will or through court order. To create a trust, there has to be a clear indication of intention on the part of the settlor. In addition, for a trust to be established the subject matter of the trust must be clear (property, funds, investments) and the beneficiaries must be identified and made clear in the trust.

Another private trust is a spendthrift trust. These trusts can be useful if you want to provide for someone, but that someone is likely to get into debt. The spendthrift trust functions in this way: a beneficiary of a spendthrift trust can neither voluntarily alienate her interest in the trust nor can creditors reach her interest in the trust. The settlor must expressly specify that he wants the trust to have a spendthrift provision.

If the trust is challenged in court, then the court will look at the plain language of the trust. If the trust is not in written form, then the beneficiary challenging the trust must prove the term with clear and convincing evidence.

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