Saturday, March 29, 2008

TRUSTS

Many people ask us, “What is a trust and why would I want to have one?” A Trust is simply a method by which one or more persons (the “trustee”) holds property for the benefit of another person or group of persons (the “beneficiary”). To establish a trust, someone (the “settlor”) must transfer property, with the specific intent to create a trust, to the trustee who manages and administers that property for the benefit of the beneficiary. In Texas, unless the instrument creating the trust sets out specific instructions, statutes will govern the trustee’s duties and liabilities toward the trust property and the beneficiary.

People often create trusts to manage their property for the benefit of a minor, an incapacitated person, or other persons whom the settlor believes are not yet ready to manage their own financial affairs effectively, such as younger adults. In addition, a trust can be used to aid the beneficiary while protecting the trust property from claims by persons that the settlor does not intend to benefit – such as the beneficiary’s spouse or creditors.

Trusts can be created during the settlor’s lifetime, and the settlor can name himself or herself as a beneficiary of the trust. In addition, the settlor can name himself or herself as the trustee. The only thing a settlor cannot do is be the only settlor, the only trustee, and the only beneficiary. As a result, trusts can be very effective mechanisms for planning one’s financial affairs prior to death, severe illness, or incapacity.