Why is this Topic Important to Wealth Managers? Advanced estate planning almost always involves some attention to concept of the legal trust. It is thus essential that wealth managers understand the purposes of trusts and the ways which trusts may be incorporated into in a comprehensive financial plan. Our discussion then focuses on building a foundation to present the credit shelter trust.
“If we were asked what is the greatest and most distinctive achievement performed by Englishmen in the field of jurisprudence, I cannot think that we should have any better answer to give than this, namely, the development from century to century of the trust idea.” [1]
Generally defined, an express trust “is a fiduciary relationship with respect to property, subjecting the person by whom the title to the property is held to equitable duties to deal with the property for the benefit of another person, which arises as a result of a manifestation of an intention to create it.” [2]
The trust is unique in that there is a separation of legal and equitable title in a trustee and beneficiary, respectively. The trust may be a very effective vehicle for accomplishing the grantor’s desires. As was expressed in the beginning of this article, to appreciate the all-important role of the trust in personal and business estate planning, an understanding of the fundamentals of trust law is important.
As was presented in the general definition, an express trust is created only if the grantor manifests an intention to create it. Such manifestation may be evidenced by conduct or words. Generally the creation of an express trust is through a trust document. A great majority of U.S. jurisdictions today require the creation of an express trust to be in writing, with the exception of trusts in some states dealing with personal property.
The trust is a device or instrument for the administration and disposition of property. No other device for this purpose possesses comparable flexibility. This factor of flexibility makes the trust unique; and this extreme flexibility makes the trust a valuable instrument for the framing and execution of estate plans.
The purposes for which trusts may be created are almost unlimited. However, a trust which has as its purpose the accomplishment of illegal objectives or which is against public policy would, of course, not have a valid purpose. Thus, a person may create a trust for any lawful purpose that he or she deems wise and expedient.[3]
One of the basic purposes of most trusts is protection. It may be the protection of a spouse, child, parent, dependent (or even a tax credit) that is desired. It may be the protection of a beneficiary against his or her own possible errors of judgment in the management of the trust property. There may be a desire to protect someone else later, by giving the income to certain persons for their lifetimes, and the principal to others at death. The intention of the grantor, as discussed above, will dictate the terms of the trust arrangement.
See a detailed analysis of trust law in the Main Library Section 21. Trusts, Guardianships And Minors B—The Law Of Trusts.
Tomorrow’s blogticle will discuss the credit shelter trust in general terms.
We invite your questions and comments by posting them below, or by calling the Panel of Experts.
[1] F. W. Maitland, Selected Essays. 129. (1936).
[2] Restatement (Second) of Trusts § 2. (1959).
[3] 90 C.J.S. Trusts § 17 (2011).
2013 Tax Facts on Investments
