Trust Administration

A. What is a trust?

A trust is a document that allows a third party (called the trustee) to hold assets in a "box" called the trust on behalf of any beneficiaries.

What are the benefits of preparing a trust?

• Avoidance of Probate. A trust will help you avoid probate, which is a long court process in which the court controls the distribution of assets to the heirs.
• Privacy. Because the content of a trust is private, it will not become a matter of public record, as it will be in the case of probate.
• Being able to control your assets. You can take control of how and to whom your assets will be distributed by preparing a trust during your lifetime.

Conclusion

If you haven't prepared a trust yet, it may be a good idea to consider preparing one!

U.S. Trust v.s. Foreign Trust

Generally, most trusts prepared in the U.S. will be considered to be a U.S. Trust. However, if a trust names a non-U.S. resident or a U.S. citizen who lives outside of the U.S. as a Successor Trustee, the IRS could consider the trust to be a "foreign trust," which may lead to more tax consequences, compared to a U.S. Trust.

"Control Test" Requires a U.S. Person To Be The Trustee

The "Control Test" under the federal statutes requires that a "U.S. person" be able to control all significant decisions of the trust, in order for the trust to be classified as a U.S. Trust. Under this test, it may be a good idea to avoid appointing any person who lives outside of the U.S., and therefore, is not a resident of the U.S., or a U.S. Citizen who consistently lives outside of the U.S. Greencard-holders who reside in the U.S., or U.S. Citizens who live in the U.S. may be good candidates for a Trustee in creating a U.S. Trust.

Conclusion

When preparing a trust, it is a good idea to take note of the nationality and residential status of the person you wish to designate as a Trustee.

A. What are the main Ancillary Documents that are prepared with your Trust Document?

When one prepares a trust, the trust designates which assets the settlor/grantor will give to which beneficiaries upon his/her death. The attorney who prepares the trust is likely to prepare some other ancillary documents for the settlor/grantor, together with the main trust document. Such primary ancillary documents can include the Pour-Over Will, Durable Power of Attorney, and the Health Care Power of Attorney.

What is the Pour-Over Will?

A Pour-Over Will is a special type of will that is often prepared together with a trust document to ensure that assets that were not funded into the trust will be transferred to the trust upon the death of the settlor/grantor. Often, people forget to fund any assets that they purchased after they've already prepared his/her trust, into the trust. The Pour-Over Will ensures that such assets transfer to be made a trust asset, upon the death of the settlor/grantor.

What is a Durable Power of Attorney?

A Durable Power of Attorney is a document in which the grantor/settlor of a trust can designate an agent who will make decisions for and manage the financial affairs of the settlor/grantor in the event that the settlor/grantor becomes incapacitated. The powers granted to such agent may include the power to buy/sell property, sign any contracts, or file tax returns on behalf of the incapacitated settlor/grantor.

What is a Health Care Power of Attorney (Advance Health Care Directive)?

A Health Care Power of Attorney, which is also called the Advance Health Care Directive, is a document in which the grantor/settlor of a trust can designate an agent who will make decisions related to medical care for the settlor/grantor, in the event that the settlor/grantor becomes incapacitated. The Health Care Power of Attorney can also be used to designate certain wishes of the settlor/grantor, such as whether to receive any life-sustaining procedures in the event that he/she goes into a vegetative state, etc.

Conclusion

As the ancillary documents mentioned above serve an important purpose, it will be good for an individual to ask his/her attorney to prepare such ancillary documents, together with the individual's main trust document.

A. What is a Pet Trust?

A Pet Trust is a trust that you can prepare for your pets(s) that specify how they will be cared for financially if you pass away or become incapacitated. You can prepare a Pet Trust separately from your regular Trust to provide for human heirs, or you can build a Pet Trust into your regular Trust that is intended to provide for human heirs.

How do you prepare a Pet Trust?

Under a Pet Trust, you can designate a trustee to manage your Pet Trust and a caretaker who will care for your pet(s). You can set aside money that will be used to provide for your pet(s) should you die or become incapacitated. You can also provide specific instructions with respect to the care of your pet(s) related to veterinary checkups, grooming costs, specific food options for your pet(s), and etc.

Conclusion

Because all 50 states and the District of Columbia now have laws allowing Pet Trusts, it may be a good idea to consider preparing a Pet Trust for your pets in order to prepare for a time that you may die or become incapacitated.

A. Funding your Trust

When you prepare a trust, it is not enough to merely prepare the trust document. You must also fund the trust, which is the process of making an asset part of your trust properties. An asset not properly transferred to the trust does not become a part of your trust properties, which may subject such asset to the probate process upon your death.

How do you fund Real Property into a Trust?

You will prepare a deed to transfer real property into your trust. In such deed, the title will be transferred from the current owner to the named Trustees of your trust e.g. "to A and B, Trustees of the AB Trust". The deed must be recorded at the appropriate recording office.

Conclusion

As the trust document is insufficient by itself without completing the funding process, it is important to remember to have your attorney complete the funding process of your assets into the trust.