March 23, 2018 | Fundamentals
A trust is an arrangement for holding property. When you own an asset outright, that is, in your own name, you have ownership of the property in every sense. But assets can be held in trust, which means dividing the legal ownership and the beneficial ownership of the property. Legal ownership means that the asset is titled in your name and you can manage it or sell it. Beneficial ownership means that you have a right to the use and benefit of the property. A trustee holds legal ownership. For example, a piece of real estate held in trust will be owned in the name of the trustee. The trustee is responsible for paying property taxes on the real estate and maintaining the real estate. The trustee also has the legal power to mortgage or sell the land. The beneficiary of a trust holds beneficial ownership of the assets owned by the trustee. Returning to the example of the trust holding real estate, if the real estate is a vacation home, the beneficiary will have the right to enjoy the real estate by staying there.
Because a trust separates the legal and beneficial ownership of assets, the relationship between a trustee and a beneficiary must be governing by the terms of the trust and by the law of the state where the trust is created. Beneficiaries may be subject to limited rights and any number of rules that can be written into the trust terms. On the other hand, a trustee is held to a fiduciary duty, meaning that the trustee is required to act in the best interest of the trust and its beneficiary.
In estate planning, trusts are a crucial tool to help families protect and grow their assets. Trusts provide tax and creditor protection. They also provide a safety net to prevent young heirs from directly inheriting large amounts of money. Trusts also provide a centralized way to manage assets so that beneficiaries can focus on other pursuits.
While providing many benefits, trusts are also complex and may not be necessary. If you would like to discuss including one or more trusts in your estate plan, contact one of our attorneys to discuss your estate planning documents and personal situation.