What senior-market agents should know about trusts

Understanding Trusts

Even though trusts are usually created with the help of a client’s attorney, we, as financial professionals, should have a basic knowledge of trusts and understand that many of our clients are either involved in a trust or should be involved in a trust to secure and protect their assets.

Common types of trusts

There are many descriptive names for kinds of trusts and it makes it hard to be an expert on all of them.

  • Revocable trusts
  • Irrevocable trusts
  • Special needs trusts
  • Testamentary trusts
  • Asset protection trust
  • Spendthrift trusts
  • Dynasty trusts
  • Charitable trusts

Even though one trust may differ significantly from another, trusts generally have common key components which make them trusts.

Key components of trusts

A trust is a legal entity with legal status separate from the person who created it. It is usually a written document, which contains rules about how its assets are to be invested, used, and distributed.

The grantor is usually the person who creates the trust document and contributes money or assets to the trust.

The trustee is the person or entity in charge of making sure trust rules are followed. The trustee holds legal title to the trust assets but must act in a fiduciary capacity for the benefit of the trust beneficiary.

The beneficiary is the one who is entitled to receive distributions or other benefits from the trust.

A current beneficiary is one who is entitled to ask the trustee for immediate benefits from a trust.

A contingent beneficiary is usually a person who is in line to receive benefits from the trust only after the trustee has fully met trust obligations to the current beneficiary.

The trust corpus or principal represents the assets that are titled in the name of the trust. At the trust’s inception this principle is made up of amounts placed in the trust by the grantor.

A grantor can create a trust so that it comes into existence immediately. These are referred to as living trusts. Living trusts can be revocable (can be changed by the grantor later), or a living trust may be irrevocable (cannot be changed by the grantor after inception).

Trusts can also be created to spring into existence later. The most common among this type of trust is the testamentary trust. Testamentary trusts are usually created by special language in a person’s will. This trust does not actually exist until after the person's death.

Provisions of trust documents

While one trust may vary from another in terms of its purpose, trust documents generally have certain provisions in common.

  • Identification of beneficiaries
  • Description of type of distribution
  • Revocable or irrevocable nature
  • Specific powers of trustee
  • Investment philosophy of the trust
  • Trustee resignation and succession
  • Choice of law governing the trust

We have talked about various names for kinds of trusts and we have touched on the creation of a trust. At a later date we will discuss briefly how trusts are administered, and the types of trusts that can be created, and their primary purpose.

Remember, most of our clients have very little knowledge of trusts, and estate planning in general. As long as we as agents have a small working knowledge of trusts, we can perhaps have influence to create business for ourselves down the road.


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