Setting up a Trust – Where to Start?

Suzanna De Baca -- Expert Business Source, 5/11/2007 10:00:00 AM

Dear Suzanna:

We’ve been told that we should consider setting up a trust for our kids but we don’t even know where to start.  What exactly is a trust and what are different kinds of trusts?

From: ”Trustworthy”

Dear Trustworthy:

A trust it is a separate legal entity into which you can transfer assets.  Once you’ve transferred assets, they become the property of the trust, which holds the property for your benefit or the benefit of those whom you designate.  Therefore, if you set up a trust for your children it can hold assets for them until they are old or mature enough to manage them, or you can arrange for the assets to be distributed to them in whatever manner you choose at some future date. 

There are numerous different kinds of trusts, with many distinct features and purposes.  In a recent column, , I discussed some of the benefits of having a trust, which include having assets avoid probate, potentially minimizing estate tax, and having some control over the disposition of your assets.

Origin of the Trust:  There are various theories on where the concept of the trust originated.  Some believe that the first trusts were established in ancient Rome in the time of Augustus Caesar.  According to historians who espouse this theory, a Roman citizen could not pass property or assets on to a non-Roman, including his own children by a non-Roman mother.  Therefore, a citizens would leave property to a Roman friend they could trust who would use the property or assets to care for his children.  Hence the term “trust” was born.

Others suggest that trusts originated in the middle ages, when a landlord would leave his property or assets to a trusted person when it was necessary for him to be away for long periods at war or hunting.  The trusted person had complete control over the assets until he returned.

Revocable versus Irrevocable:  Regardless of the true origin of the trust, they fall into two categories:  revocable and irrevocable.  A revocable trust is one that you can “revoke,” or change, while an irrevocable one cannot be changed after it is established. 

Intervivos versus Testmentary:  When you set up a trust during your lifetime, the legal term for this is intervivos.  If established upon your death by your Will, they are known as testamentary trusts.
Components of a Trust:  A trust consists of four components: 1)  A grantor, the person who establishes the trust; 2)  The beneficiaries, who receive the benefits of the trust, which may include income and/or principal; 3) The assets, which are properties transferred into the trust; and 4) The Trustee, who is the person or entity that manages the trust's assets and distributes the property according to terms established by the grantor. A trustee may be a relative, a trusted friend, or a bank, to name a few examples.
These are some trust basics that will help you get started.  Make sure to consult with your financial advisor and an attorney who specializes in trusts and estate work to make sure you’re setting up the type of trust or trusts that are most appropriate for you and your heirs.

Suzanna de Baca is President of Private Capital Solutions Group.  She is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 7 Hanover Square, New York, NY 10004, (888) 600-4667.  Securities products/services and advisory services are offered through PAS, a registered broker/dealer and investment advisor. Private Capital Solutions Group is not an affiliate or subsidiary of PAS.
PAS is a member NASD, SIPC.
Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.