Loading…
(415) 398-7275
Walnut Creek & San Francisco

Earning Your Trust

1. The What, Who, and Why of Trusts

 

If you’ve read any Dickens, or consumed any form of media focused on upper-crust society (like Downton Abbey, Billions, or other similar shows) you’re probably at least somewhat familiar with Trust Funds; or, at least the public perception of them. A mysteriously vast fortune with attached lifestyle stipulations, set aside for the young, arrogant heir, or the carrot-on-a-stick that motivates the unwitting inheritor to blindly follow the rules of who bequeathed such riches– Trust Funds in media are the new 3 wishes granted by the mythological genie, dooming those who gain them to an especially luxurious downfall; however, this is incredibly dramatized, and doesn’t nearly give Trusts the credit they’re worth. In reality, Trust Funds aren’t the exclusive purview of the super-rich, nor are they always created with the intention of seizing control of the beneficiary’s life.

A Trust can be created by anyone with proper legal counsel, and at its core is a designated legal holding of funds or assets chosen by the creator of the Trust, also known as the Grantor. These funds and assets can range from money, to art, or even an entire business controlled by the Grantor, and are set aside and intended for eventual use by the Beneficiary: the person or organization designated by the Grantor to benefit from the fund. However, in most cases, much of this can be handled by a will, if the Trust is simply created with the intention of passing on assets upon the Grantor’s death, or simply by transferring the assets directly, if it is to be done pre-mortem. So why create a Trust?

 

Trusts are generally used when the Grantor wants the assets being transferred to be used or granted in a very specific way, or under specific circumstances, without their direct control over the assets themselves. Some examples of why a trust would be desirable are as follows:

  • The Beneficiary is untrustworthy, or would sell assets the Grantor wants kept. Perhaps this is a family member who spends money frivolously, or has a substance abuse problem, and the Grantor wishes the funds to be used only on housing and food purchases.
  • The Beneficiary is unable to manage their own assets properly due to age or other fiduciary irresponsibility, and the assets would end up being managed by a caretaker or parent not trusted by the Grantor.
  • There are some taxes that can be avoided when a Trust is granted to a charitable organization. A Charitable Annuity Trust can shield massive amounts of money from taxes.
  • ..and many more complex or more personal reasons.

 

So, given all this, how is the Trust kept to these stipulations, without the personal involvement of the Grantor? This responsibility falls under the duties of the Trustee, the person or organization granted managerial duties over the Trust in place of the Grantor.

 

2. The Qualifications of a Trustee

The Trustee is given almost complete control over the administration of the Trust, so long as it falls within the stipulations given by the Grantor; however, as Trusts have been used and abused throughout hundreds of years of Trust-making, the laws surrounding them have gotten more and more complicated, both protecting the Trust from abuse by the Trustee and making it excessively difficult to manage. This is why there are several important qualifications that an established Trustee should have.

 

  1. The Trustee should be familiar with all state and federal laws surrounding Trust management, and be especially wary of cases that could mark the Trustee as self-dealing or disloyal.
  2. Impartiality towards the Beneficiary(s). The Trustee should not have a greater desire to serve the interests of the Beneficiary over the Grantor– in the ideal situation they would act exactly as the Grantor envisioned.
  3. Familiarity with investment and the stipulations established by the Prudent Man Rule.
  4. The Trustee should also be familiar with organizational systems and documentation practices, for tax purposes if nothing else.
  5. Absolute loyalty to the Trust, and through that the will of the Grantor.

 

This leaves the Grantor with several options. While an individual Trustee like a family member or close friend of the Grantor may have the emotional familiarity with the situation that a corporate Trustee may lack, they may also lack the legal familiarity or the time to deal with the responsibilities of being a Trustee. On the other hand, a corporate Trustee may have the time and legal resources necessary to perfectly manage your Trust (as far as the law is concerned), but be unable to make decisions that would follow the Grantor’s true desires if they lie outside of the specific stipulations of the Trust.  In the end, it comes down to what the Grantor “trusts” more: the law, or personal relationships.