QUESTION: I read your article in The Gleaner on setting up a trust, but you never went into detail. I don’t know if I can do it myself like I registered my company, or if I have to go through a lawyer or if there is an organisation to deal with that.
FINANCIAL ADVISER: A trust is a legal arrangement by which a person or entity, called the trustee, holds title to the assets and administers them on behalf of the beneficiaries so that the benefits of ownership can accrue to them. It is established when a person, called the grantor, donor, or settlor, who may also be a beneficiary, transfers his or her assets to it.
The assets that can be transferred to the trust can be real or personal, for example, money, real estate, stocks, bonds, business interests, motor vehicles, and personal possessions.
In a sense, the trust is a contract between the grantor and the trustee or trustees, for there can be more than one trustee. In this contract, the donor transfers certain assets to the trustee for certain purposes, and the trustee agrees to manage and distribute them in the way specified.
The trust separates the legal title of the assets from the beneficiaries and the grantor and transfers it to the trustee, who becomes responsible for, among other functions, collecting and reporting income as well as for paying taxes, for example, and may be sued by the beneficiaries in certain circumstances. Nonetheless, the beneficiaries retain an interest in trust property by their right to benefit from it as specified by the terms of the trust.
In a revocable living trust, the donor can exercise significant control over the trust by being able to buy and add assets to the trust, by being able to sell trust property, being able to add and remove beneficiaries, and by being able to change the terms of the trust at any time. These changes can only be made if proper legal procedures are followed.
The settlor does not have any such powers under the terms of an irrevocable living trust. A living trust comes into being while the grantor is still alive as opposed to a testamentary trust, which takes effect after the death of the donor.
There are several cases in which a trust can be very useful. A good example is the case of people who have young children. A trust can provide for the education of the children and for their care in the event of the death of their parents. A trust can also be used to provide for elderly family members and those with special needs. A trust can be useful to transfer property that is difficult to divide evenly among several beneficiaries, to maintain more control over a gift than would be possible through a will, and to keep the arrangement between the settlor and beneficiary confidential.
If there are assets that have not been transferred to a living trust, they should be included in a will so that they can pass to the designated beneficiaries. Particular assets to pay attention to in this regard are those that do not have a beneficiary designation and those that are not jointly owned with another person.
To set up a trust, the trust agreement – a document addressing details such as the settlor; the beneficiaries, who must be determined with certainty; the trustee; the trust property; the purpose of the trust; and the responsibilities and limitations of the trustee – should be drafted. The donor can give the trustee full discretionary powers or clearly specify the powers being given to the trustee, and the wording of the agreement can be unique to suit each situation.
The trust is created when the settlor transfers assets and legal title to the trustee with instructions as to how the assets are to be used for the benefit of the beneficiaries.
The cost of transferring the assets to the trust is determined by the Stamp Duty and Transfer Tax Department based on the value of the assets. In addition, legal services cost, and other charges are generally incurred during the life of the trust.
Considering the nature of the work involved, it is best to engage an attorney-at-law who is competent in trust matters to set up the trust. I suggest you check the Yello telephone directory under Attorneys where several law firms indicate that “Trusts” is a service they offer. The commercial banks through their trust departments also offer the service. Because their fees differ, it is prudent to shop around.
– Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and email@example.com