ESTATE PLANNING
TRUSTS POSITIONS DESCRIPTIONS

By: David L. Crockett, Attorney, CPA
UCLA Law School , J.D. ’69, UC Berkeley ’66
901 Dove St., Ste 120, Newport Beach, CA 92660
Phone: 949-851-1771
Email: David@CLCNewport.com
Website: TrustandProbateLawyers.com

 

BASIC NOMENCLATURE.

Trust and Probate lawyers and the 1,100 page California Probate Code use certain basic descriptions for persons involved with a Trust.  A Trust is in effect a legally enforceable contract.  All Trusts in California and in most states contain three essential persons and or institutions in the Trust documents.  To understand a Trust document and keep the cast of characters from being confusing I provide the following explanations of (1) Trustors, (2) Trustees and (3) Beneficiaries.

(1)  TRUSTORS

Trustors-Creation of trusts. A trust is created by a written document known as a declaration of trust and is then funded by transfer of money into trust bank accounts and/or deeding or transferring of properties to the trust. The creator of the trust is known as the “Trustor” or the “Settlor.”   Sometimes the Trustor is referred to as the “Trust Maker”.  Trusts can be and usually are custom tailored to meet the specific needs and desires of the Trustor.

(2) BENEFICIARIES

The persons who are to receive money and property out of the trust are known as the “Beneficiaries”.  In the typical living trust, the Trustor may also be a Beneficiary and usually is the Beneficiary while he/she is still alive. Also, the Trustor’s children are often named as Beneficiaries either to receive current benefits or to receive benefits after the Trustor is deceased.  In the latter situation, the Beneficiaries would be known as “residuary Beneficiaries”.   A proper custom prepared Trust will carefully define the Beneficiaries so the Trustee will have clear instructions.  If the instructions and definitions are not clear, then the Trustee would have to resort to the court system to ultimately have a Judge determine who the Beneficiaries are.   Legally, a Trustor can leave his or her estate to anyone or any entity such as a church or charity.

One fact to understand is that the Trustor’s children or spouse are not automatically entitled to money or property from the Trust.  They only received trust benefits (i.e. money or property) if they are named as Trust Beneficiaries in the declaration of Trust.  However, there is some complication to this concept.  Under the law dealing with “pretermitted heirs”, omitted spouses or children do have some rights to claim Trust benefits.  The pretermitted heir concept first presumes that if a spouse or children are omitted from the declaration of Trust that the Trustor must have forgotten their existence and they can file a lawsuit (known as a trust petition) to be included.  Thus, if the Trustor definitely wants to exclude a spouse and/or some or all of his/her children, the declaration of Trust must contain a specifically worded paragraph so that intentional exclusion is legally established.

(3) TRUSTEE

The person or institution that takes care of the money and property of the trust is the trustee. The trustee is bound by law to follow the directions contained in the declaration of trust. The Trustor may also serve as the Trustee in some situations.  The Trustor typically serves as the Trustee while he/she is alive and legally competent.  However, a proper custom prepared trust will contain detailed definitions and instructions as to who will take over as the Trustee (i.e. become the “successor trustee”).  Successor Trustees are typically become Trustees in the event of the Trustor’s death, disability, incompetency, resignation or ceasing to act.  It can get complicated in situations involving disability or incompetency because those terms are not so easily defineable.  A Trust should have understandable and legally enforceable explanations about what is meant by disability or incompetency.  Also a Trust should have a procedure where the successor Trustee can determine and obtain court-admissible evidence that in fact the Trustor has become incompetent or disabled.  Typically that is established by letters from health care professionals but again the Trust should state what the health care professionals should say in such letters.

There are some choices in who to name as the successor Trustee.  For Trusts with substantial assets, or Trusts which will continue for a long time after the Trustors’ death, an institutional Trustee, such as a bank or trust company is generally recommended.  The downside of using an institutional trustee is that the annual cost may range from 1% to 2% of the Trust’s assets.  However, the upside is that the money will not disappear (because of licensing and bonding), and all of the tax returns and accountings to beneficiaries will be timely done and the Trust wording and instructions will be precisely followed.  As well as institutional trustees, there are licensed Private Professional Trustees in California who are suitable to be the successor Trustee in some situations.

CONCLUSION

A basic understanding of the above three terms will allow for more intelligent discussions with the attorney preparing the Trust.