A trust is a contractual arrangement where an individual, known as a grantor, conveys or transfers the title of property to a third party, called a trustee. This is for the benefit of individuals whom the grantor designates. An irrevocable trust is one in which the terms of the trust cannot be modified, changed or revoked by the grantor, or any other person once it is created.
Present Intent to Create a Trust
There must be a present effective transfer of the trust property by the grantor before a valid trust can be created. A mere promise by a grantor to hold or transfer property at some unspecified time in the future for the benefit of others is legally insufficient to create a trust. Usually, the intent to create a trust is accomplished by a written document called a declaration of trust. The declaration of trust identifies the trustee, as well as the beneficiaries, and reveals how much interest in the trust property each beneficiary is entitled to.
The corpus, or property, of the trust must consist of an existing interest in property and be capable of identification. Trust property can be personal property, cash, and securities, or intangible assets such as patents or royalties.
Transfer of Title
No valid trust is created until the trust property has been conveyed to the trustee. In the case of property, this would be accomplished when the grantor conveys the deed over to the trustee who then holds title for the benefit of the beneficiaries. In the case of personal or fungible property, the items must be physically delivered to the trustee.
Administration of Trust
The trustee is charged with administering and managing the trust. As a fiduciary, the trustee owes the beneficiaries the legal duty of the utmost good faith and loyalty. The trustee must manage the assets of the trust consistent with sound and prudent investment principles. This is so that the principal of the trust is preserved, and the assets generate sufficient income for the designated beneficiaries. As such, risky or speculative investments, as well as those that would generate little or no annual income, would be inappropriate for the trust.
Most modern trusts are created by a grantor transferring securities or real property to a trustee for the benefit of the designated beneficiaries. Commonly, the irrevocable trust will provide that certain beneficiaries receive income during their lifetimes. Upon their death, the principal or corpus of the trust goes to their heirs.
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