Posts Tagged ‘trust series’

Trusts Series Part VI: Spendthrifts

Tuesday, October 2nd, 2012

The primary purpose of a trust is to provide a monetary benefit to the named beneficiaries of that trust. There are instances however, where a beneficiary is not good at managing his finances or he has creditors who wish to access his interest in the trust. In order to protect the assets in the trust from the beneficiary’s poor financial decisions or his creditors, a spendthrift provision can be added to the trust.


Spendthrift provisions in trusts grant the trustee discretion over distributions of trust assets to the beneficiary, while granting no ability to the beneficiary to withdraw or access the assets in the trust at his own discretion. Without the ability to access the assets in the trust at any time, the beneficiary is not considered to have control over those assets. This lack of control creates a barrier between the beneficiary’s creditors the trust assets, making it extremely difficult for them to gain access to the trust assets in order to settle any of the beneficiary’s debts.


Generally speaking, it is more appropriate to include spendthrift provisions in trusts instead of wills. The devises given through a will should usually come without such a condition attached as it may unintentionally create a testamentary trust. For more information regarding wills and trusts please refer to the other blog posting on this site.

Trusts Series Part V: Pet Trusts

Tuesday, September 4th, 2012

Over the past several decades the issue of caring for pets after the death of their owner has arisen in the field of estate planning. People often worry about how their pets will be cared for after they pass, and this can lead them to make unusual estate planning decisions. Perhaps the most famous case of over-the-top pet planning involved Leona Helmsley and her Maltese dog, Trouble.


Ms. Helmsley, an incredibly wealthy businesswoman, left a $12 million trust fund to be used to care for Trouble. This amount was eventually lowered to $2 million. While noteworthy and maybe even comical, this is an excellent example of the love that people have for their pets and the lengths that they will go to in order to provide for them.


The average person does not have the means to create a $2 million trust to care for their dog, but that does not mean that a pet trust is not permitted. Massachusetts has no official statutes relating to the creation of a trust for the care of a pet after its owner’s death.  However, this does not prevent the creation of one.


The creation of a pet trust may still be accomplished so long as the property held by the trust is not of an unreasonable amount and the provisions in the trust make it clear that the funds within the trust are to be used for the care and comfort of the pet. It would also be beneficial to name a trustee who is fully aware of the provisions in the trust and is willing to take the pet into his or her home after you have passed.

Trusts Series Part IV: Revocable and Irrevocable Trusts

Tuesday, August 7th, 2012

In a previous part of this series we discussed forms of trusts and introduced the inter vivos trust. Inter vivos trusts are any trust created by a donor while he or she is still alive. This is a very general description and inter vivos trusts can come in numerous types and contain many different provisions based on the intent behind the creation of the trust. With this part of the series we will begin to narrow down the types of trusts and the provisions in those trusts.


One of the first decisions that must be made in regard to the creation of a trust is whether it will be revocable or irrevocable. The revocability of a trust refers to the donor’s ability to change provisions in the trust or eliminate the trust completely and take the assets and property back. The creation of a revocable trusts grants the donor these rights, this allows for more control over the trust after its execution, but it will lack some of the benefits that an irrevocable trust offers.


In a revocable trust, a donor is still deemed to have enough control over the assets in the trust to still have ownership rights. Revocable trusts generally do not offer the asset protection benefits of irrevocable trusts and are more often used in estate planning to avoid the probate of an estate. As mentioned in the previous part to this series, entitled “Trust Forms,” trusts of this nature can be used to pass property in an easier, cheaper, and more private manner. However, irrevocable trusts provide even more powerful benefits.


Irrevocable trusts generally remove the donor’s ability to change any provisions in a trust, remove or add beneficiaries of the trust, or dissolve the trust and take back the property within it. The trade off is that the donor is no longer considered to “own” the property in the trust. This means that the trust can be used to protect the assets in the trust from creditors, help to plan for Medicaid qualification, and potentially avoid estate taxes.

Trusts Series Part III: Trust Forms

Tuesday, July 24th, 2012

As stated in Part II of this series, trusts can be made by either oral or written means. Although oral trusts can be just as valid as written trusts they are often harder to prove as valid because there is no documentation to verify them. This section will focus primarily on the two main forms of written trusts, inter vivos and testamentary trusts.


Inter vivos trusts are any trusts created by a donor while he or she is alive. This is the most common form of trust.


Testamentary trusts are trusts that are created by a will. There may be instances where a testator wants to make a devise to someone, but he feels that that person may not be able to properly manage the assets. That person may be a minor, be mentally incapable, or may simply be bad with money. Testamentary trusts allow testators to make conditional and time delayed devises with more power and control than traditional will provisions.


The main disadvantage in the creation of testamentary trusts is the loss of the ability to avoid probate. Inter vivos trusts create a new legal entity to hold assets and property while the donor of that trust is still alive. So long as there are beneficiaries to the trust, the trust will remain active and valid after the donor’s death. Because of this continuation, any assets that are in an inter vivos trust at the time of death of a donor will not be considered part of his probate estate. If property is not part of a probate estate then it does not need to be probated after the death of the donor. The avoidance of probate allows a donor to pass on property after death in an easier, cheaper, and more private manner.


Trusts Part II: Creation of a Trust

Tuesday, July 3rd, 2012

In general, the creation of a trust is significantly easier to prove than the creation of a will. In order to prove the existence of a valid trust one needs to only meet 3 requirements:

Intent – in order to prove the creation of a trust there must have been the initial intent to create the trust. This required intent can be manifested in many ways, it may be as simple as a spoken agreement or as complicated as a 50 page legal document.
Property – in order to be valid a trust must have property held within it. It is the trust’s purpose to provide for a beneficiary. If there is no property for the trustee to manage, there is nothing to provide to the beneficiary.
Beneficiary – valid trusts must have at least one identifiable and ascertainable beneficiary. Without a beneficiary the trustee has no reason to manage the property in the trust or person to distribute the trust assets to.

While these are the bare minimum requirements for the creation of a trust, trust creation as a whole is not nearly that simple. In order to achieve the intended benefits of particular trusts certain drafting requirements may need to be met. If these specific drafting requirements are not met a trust will likely still be created, but the trust may not carry all the added benefits intended in the drafting. This weekly series will cover the common forms and types of trusts available, as well as their intended uses and benefits.

Trusts Part I: What is a Trust?

Monday, June 18th, 2012

By its most basic definition a trust is an agreement by which one party gives control of property or assets to another for the benefit of a third party. Trusts can be used for numerous purposes including the passing of property outside of probate, the protection of assets from certain creditors, and the benefit of someone who is not responsible with money.

There are three main players in any given trust arrangement:

Donor – the person who creates the trust. The Donor is the one who funds the trust with property or assets, determines the rules and guidelines for the trust, and names the trustee and beneficiary under the trust. There can be one or more Donors to a trust. (The Donor can also be called the Settlor or Trustor)
Trustee – the person who manages the trust. The Trustee is a person named by the Donor to manage the property or assets that are placed into the trust. There can be one or more Trustees named under a trust.
Beneficiary – the person benefiting from the trust. The beneficiary is the person who is named to receive some payment of income or principle from the trust. There can be one or more beneficiaries named under a trust.

Under any number of circumstances a person may take more than one of these roles, depending on the ultimate purposes of the particular trust. Trusts come in many iterations, for the purposes of this series general trust provisions and types will be discussed with a focus on specific Massachusetts based laws and rulings.