This article continues our series on using trusts for estate planning. Our previous post provided an overview of trust and estate concepts we will cover. This article will explain what is a trust and who are the parties involved.
The first thing to understand is what exactly is a trust in the first place. Then you can understand how they can be used for your benefit. Once you know how they work, we can talk about setting them up. This will help you maintain and transfer your assets in Oklahoma.
What is a trust?
A trust is form of joint ownership of an asset. In a way, it is merely an agreement between two or more parties on how an asset will be owned and maintained. In a trust, a grantor gives property to a trustee. The trustee then holds the title in their name. The trustee will give the property to the beneficiaries, just as the grantor directed in the trust.
This is basically what it is. A form of joint ownership. There are two types of ownership in every asse. First, there is legal ownership, or legal title. This means you can transfer the asset, sign the check, make withdrawals, and control the asset.
Then, there is equitable ownership. This is the right to receive the profit or the proceeds after the asset is sold. Equitable ownership means you have the right to get income distributions. But, this only happens after a decision is made to issue those distributions.
Who are the parties to a trust?
A trust is just an agreement for shared property ownership. Now, you see there are several parties involved. Who are these parties?
The first is the Grantor, sometimes called the Settlor or Trustor. The Grantor is the person who creates the trust. The Grantor is also the person who funds the trust or conveys the assets to the trust. The Grantor is also the one who creates the terms of the trust.
The Trustee is the party who agrees to hold title the assets in his or her name. The Grantor’s assets will now be in the Trustee’s name. This allows the Trustee to control the assets.
Finally, we have the Beneficiaries. These are the individuals who have a right to receive the assets.
It is important to know that a single person can hold all three roles. Most revocable living trusts begin with the original grantor in all three roles. However, eventually other individuals will assume the other roles of trustee and beneficiary. The terms of the trust will determine when those role changes take place.
Who should be trustee of your trust in Oklahoma?
In the beginning, you will probably want to be the trustee. You will probably want to retain control of your assets. Keep the right to sign checks, withdraw money, sell property, and give gifts. Most people want to keep these powers until they can’t, either due to incapacity or death.
There are some individuals who want to give up control immediately. This is necessary when creating asset protection trusts. But we will save those advanced planning concepts for later in this article series.
For now, we are interested in naming someone to control our assets and property while we are alive. That will usually be the person who creates the trust, along with their spouse. Then they must decide who will control the assets after they die.
You can appoint your beneficiaries to also be the trustees. This is a very common and acceptable practice. However, it doesn’t provide asset protection from creditors, divorce, bankruptcy or lawsuits.
We spend a lot of our time with clients talking about who to choose as trustees and successor trustees. Those discussions involve the pros and cons of different individuals. Curious about who to appoint as your estate’s trustee? Book a consultation with us! Call 405-607-7799 or send us an email.
Now that you understand what a trust is and the roles in a trust agreement, you’re ready to learn how to set one up. Our next article will cover the initial stages of setting up a trust in Oklahoma.