What are the elements in a legal living trust?

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Answered by: Christopher, An Expert in the Wills and Estate Planning - General Category
Legal living trusts are useful estate planning devices. Unlike a will, a living trust can be kept private and the family does not need to initiate the probate process in order for the terms of the trust to become legally binding on the beneficiaries. A living trust, also known as an inter-vivos trust, is created during the lifetime of the settlor (the person creating the trust). The settlor acts as trustee and beneficiary during his liftetime. Like other legal documents, several elements must be present to make the trust legally valid. In essence, a living legal trust requires the following elements: trust property, identifiable beneficiaries, a trustee and a declaration of trust.

A legal living trust must have trust property (also known as "trust res") for it to be effective. Property ownership involves two different interests: legal (the right to actually possess the property) and equitable (the right to receive the benefits from that property). When property is held in trust, the title to that property is split. The trustee holds legal title to the property. The beneficiaries hold equitable title to the property. This special arrangement allows the settlor to control the disposition and management of his property by describing how it must be managed in a document called a declaration of trust.

The trustee manages the trust property. He must act according to the terms written in the declaration in trust. Even though the trustee owns legal title to the property in trust, the trustee is a fiduciary and must act in the best interests of the beneficiaries. This means that the trustee can manage the property and distribute it to the trustee according to the terms in the declaration of trust. In a living trust, the settlor acts as the trustee during his life and appoints a successor trustee to take over when he dies.

Beneficiaries are entitled to the enjoyment of the property held in trust. For example, the trust may contain a provision to distribute a certain amount of money to a beneficiary when she turns 18. Trusts must have identifiable beneficiaries. In a living trust, the settlor is both trustee and beneficiary. This means that the settlor can still control and enjoy his property while he is still living. When the settlor dies, successor beneficiaries take over. Beneficiaries do not have to be specifically named, only identifiable. Stating that the trust is for the benefit of the settlor’s children, for example, suffices because these individuals could be easily identifiable. It is important to be precise when possible, however, to avoid problems.

The document containing the terms and conditions of the trust, including the names of the trustee and beneficiaries, is the declaration of trust. With this document, the settlor describes how he wants his property to be managed when he passes away. Because this process involves making important decisions that affect the title and nature of a person’s property, it is strongly recommended that the person speak to an estate planner before proceeding on his own.

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