What is a trust and why might it be a good idea for you?
Black’s Law Dictionary defines a trust as “[a]n equitable or beneficial right or title to land or other property, held for the beneficiary by another person, in whom resides the legal title or ownership, recognized and enforced by courts of chancery. See Goodwin v. McMinn, 193 Pa. 046, 44 Atl. 1094, 74 Am. St. Rep. 703; Beers v. Lyon, 21 Conn. 613; Seymour v. Freer, 8 Wall. 202, 19 L. Ed. 300. An obligation arising out of a confidence reposed in the trustee or representative, who has the legal title to property conveyed to him, that he will faithfully apply the property according to the confidence reposed, or, in other words, according to the wishes of the grantor of the trust. 4 Kent Comm. 304; Willis, Trustees, 2; Beers v. Lyon, 21 Conn. 613; Thornburg v. Buck, 13 Ind. App. 446, 41 N. E. 85. An equitable obligation, either express or Implied, resting upon a person by reason of a confidence reposed in him, to apply or deal with the property for the benefit of some other person, or for the benefit of himself and another or others, according to such confidence. McCreary v. Gewinner, 103 Ga. 528, 29 S. E. 9G0. A holding of property subject to a duty of employing it or applying its proceeds according to directions given by the person from whom it was derived. Munroe v. Crouse. 59 Hun. 248, 12 N. Y. Supp. 815.”
As one can imagine, the definition is long, complex, and often leaves the reader with more questions than before.
When I explain what a Trust is to my clients, I use the analogy of a business. A person (settlor) sets up the business (trust agreement), fills the business with stuff (trust assets), then appoints a manager (trustee) to run the business for the benefit of someone else (beneficiary). The goal of a trust is to make it so you no longer own the property, but you can still control it. With some of the most common trusts you can sign your property over to the trust, manage the trust, and benefit from the trust all at the same time. This means that there is very little practical difference between having a trust and not having a trust when it comes to day-to-day life. The benefit arises when you become incapacitated or die.
What is the benefit of a trust?
If we die with more than $50,000 worth of property, our estate (all of our property that doesn’t automatically go to someone else) will go through probate which is a way for our heirs to get the property transferred to their names. Probate is often lengthy, expensive, and entirely public, which is why many people want to avoid it if possible. A trust is one method that allows your estate to avoid probate. This makes sense because you no longer own the property, the business (trust) owns the property. If you have no property to your name, there is nothing to probate. Like a will, you can choose who oversees distributing the trust property after your death, and who gets what property. You maintain the same level of control over the property as if it were still in your name, while avoiding the probate process.
I have a will already, so my estate will avoid probate.
This is a common misconception I see from clients. Many believe that since they already have a will, their estate will avoid probate. This is simply not true. A will ensures that an estate will be probated. All a will does is give instructions to the court probating your estate as to whom you want your property to go to. Without a will, the court will distribute your property according to guidelines in the Iowa Code. With a will, the court will ignore the guidelines and distribute the property according to your instructions. Either way, your estate is going through the long, expensive, and public process of probate. The trust takes away the court’s probate power over the trust property.
Every situation is unique and requires individualized attention from our attorneys. If you would like to speak with an attorney regarding drafting a trust or about any other legal issue you are having, please call 515-868-0088 to set up an initial consultation with us.
-Kyle A. von Johnson, Esq.