Although trusts and other legal documents have generally improved to include more “plain English” rather than complicated legalese, trusts share some common terms and provisions.
There are three main parties to a trust. A grantor, also referred to as settlor or creator, is the person who creates the trust. A trustee is the person or entity that manages the assets in the trust. A successor trustee takes over if the trustee cannot act. A beneficiary is the person or entity that benefits from assets in the trust, either during the lifetime of the grantor or on the death of the grantor.
There are two overall types of trusts -- revocable and irrevocable. The grantor may revoke a revocable trust. Generally, the grantor may not revoke an irrevocable trust, but New York law allows the revocation of an irrevocable trust if all the parties (grantor, trustee and beneficiaries) agree in writing to the revocation.
Trusts include provisions that govern the trustee's rights to trust assets, expressed in terms of the right to income and principal of trust assets. Very often in a revocable trust, the grantor who is also the trustee has the right to all income and principal so therefore has complete control of trust assets and income. Irrevocable trusts often limit the trustee's rights in managing trust assets.
For example, in the Medicaid Asset Protection Trust (MAPT) that protects assets from nursing home costs after assets have been in the trust for five years, the trustee may only pay income from trust assets to the grantor. The grantor may not receive any of the trust principal. Even with such a restrictive rule, the grantor may authorize the trustee, who is usually an adult child of the grantor, to make a gift of trust principal in the MAPT to the child who could then purchase something for the benefit of the grantor.
Trusts describe the “disposition” of trust assets when the grantor dies, like the directions in a will, but without a court proceeding on death called probate, which is when wills are used. The beneficiaries may be people or institutions receiving specific amounts of assets or divided by percentages.
Other trust provisions may address varied topics such as the age when a beneficiary may receive their share, setting up a Supplemental Needs Trust for a disabled beneficiary so the inheritance will not diminish their government benefits, a “no contest clause” that says anyone who disputes their inheritance will receive nothing, and tax savings protection.
Trusts may vary greatly in goals and internal rules but also share common terms and a common structure.
Bonnie Kraham is an attorney practicing elder law estate planning with Ettinger Law Firm, 75 Crystal Run Road, Middletown. She can be reached at 845-692-8700, ext. 119 or firstname.lastname@example.org. This column is intended to provide general information, not legal advice.