Introduction to Trusts
Chapter 12
Terminology
•
•
•
•
•
•
•
•
Trust
Settlor
Trustee
Legal Title
Equitable Title
Beneficiary
Trust Property/Corpus
Trust Instrument
Creation of a Trust
Trust
• A property arrangement in which real
or personal property is transferred from the
settlor to one or more trustees who hold legal
title to the property for the benefit of one or
more beneficiaries who hold equitable title
Settlor
• The creator of a trust, also called the creator,
donor, grantor, or trustor
Trustee
• A person of trust who holds and manages
property for the benefit of one or more
beneficiaries
• A fiduciary who is required to perform all trust
duties according to the terms of the trust
instrument and of the law with loyalty,
honesty, and good faith
Legal Title
• A form of ownership giving the trustee the
right to control and manage the property for
another’s benefit
Equitable Title (of a trust)
• The right of the party who holds the
beneficial interest in a trust to the benefits of
the trust
Beneficiary
• A person who has the right to receive
the benefits of the property of a trust
Trust Property
• The real or personal property of the trust that
the trustee holds subject to the rights of one
or more beneficiaries
Trust Instrument
• A written document that creates a trust;
establishes the terms of the trust; establishes
the rights, duties, and obligations of the
trustee; and names the beneficiary
Types of Trusts
• Revocable
– The settlor has the right to revoke or change
the terms of the trust prior to his/her death
• Irrevocable
– Once created, the trust cannot be revoked
or changed by the settlor
Essential Elements of a Trust
• A settlor who creates the trust
• One or more trustees who administer and
manage the trust
• One or more beneficiaries who receive the
benefits of the trust and who enforce the
trust
• Real or personal property that must be
transferred to the trust
Removal of a Trustee
•
•
•
•
•
•
•
Lack of capacity
Serious breach of trust
Refusal to post bond when it is required
Refusal to account for expenditures
Crime of dishonesty
Prolonged absence from the state
Unreasonable failure to cooperate with a cotrustee, if there is one
• Showing favoritism to one or more
beneficiaries
Powers of a Trustee
• Determined by the terms of the trust and by
state statutes
• Trustee powers
– Sell assets
– Lease property
– Carry on a business
– Lend or borrow money
– Hire professionals
Duties of a Trustee
•
•
•
•
•
Duty of performance and due care
Duty of loyalty
Duty to preserve and possess trust property
Duty to invest trust property
Duty to make payments of income and
principal to beneficiaries
• Duty to account for profits and losses
Liability of a Trustee
• Remedies available to a beneficiary for a
trustee’s breach of trust
– Removal
– Recovery of wrongfully taken assets
– Sue to compel the trustee to perform duties
– Sue for breach of loyalty
Cost of a Trustee
• Usually, a percentage of the assets under
the trustee’s management
• May be waived for family members
• Can be regulated by statute
Beneficiaries
• Have equitable interest in the trust property
• Do not have the right to direct distributions or
investments
• Can enforce the terms of the trust
• May be individuals or a class of people
Property of a Trust
• Is a gift from the grantor or settlor
• Also called corpus, res, principal, subject
matter
• Can include real and/or personal property
Termination of a Trust
• Completion of the trust’s purpose
• Revocation by the settlor
• Merger of all interests (legal and equitable) in
the same person
• Upon request of the beneficiary when there
is no express purpose that requires
continuation of the trust