Terms and Definitions

Agency

An agency agreement is a simple legal document in which the principal (owner) retains control and ownership of the property and hires us for specific duties that are set forth in the document.  This usually includes receiving income and paying expenses, providing an accounting and completing a personal tax return.  This is a more informal arrangement where the agent may be removed at any time, for any reason, by the principal.

Beneficiary

A beneficiary is an individual, institution, or organization that will receive the benefits of the trust.

Probate

A probate is the judicial determination of the validity of a will.  The court vests power in a personal representative to gather and safeguard all the assets, create an inventory, pay taxing authorities, and distribute assets in accordance with the will.  The court gives final approval for all activities of the personal representative. 

Remaindermen

A remainderman is an individual, institution or organization that the trust will be distributed to upon termination.

Trust Agreement

This is the formal contract which controls the trust property, and is usually between the trustor and the trustee, for the benefit of the beneficiary.  We manage trusts that have trust agreements already written, or we will provide assistance, in conjunction with an outside attorney, in drafting a new trust agreement.

Trust Property

Any asset that is "real" or "personal" property held within the trust.  This is property belonging to the trustor, which is transferred or "gifted" to the trustee.  This could include things like farm land, gold and silver, private residences, apartment buildings, or vehicles.

Trustor (also known as a Settlor or Grantor)

This is usually the original owner of the property.  It may sometimes be a court, guardian, or attorney-in-fact under a Power of Attorney.  The trustor, with the advice of an attorney, creates the rules and payout provisions that are set forth in the trust document.  These rules guide the trustee. 

Trustee

A trustee is an individual, institution or organization that holds the legal title to the trust property and is responsible to manage and administer the assets of the trust.  A trustee may be appointed by the court, or by the trustor.  It is also possible for two trustees to share duties as co-trustee.  Frequently, we are named as an alternate trustee and act as a backup should the original trustee be unable to continue serving. 

Types of Trusts

Charitable Remainder Trust - A Charitable Remainder Trust (or split interest trust) is an irrevocable contractual agreement in which the owner of the property transfers assets to a trustee who manages them for the benefit of the owner who will receive the income or trust payout.  The charity or charities of the owner's choice will eventually receive the remainder of the trust assets.  These trusts are carefully proscribed by the IRS.  They are irrevocable and provide three significant tax benefits:  a current tax deduction, a shelter of the capital gain, and avoidance of federal and state estate tax. 

Court Supervised Trust - A trust that is set up and monitored by the courts in order to protect the benficiaries.   Often these trust  are funded with successful lawsuits, such as medical malpractice or personal injury litigation.  The court often appoints us as a trustee when the beneficiary is unable manage his or her assets independently. 

Irrevocable Trust - A trust that is created by a grantor and cannot be changed.  Usually, these trusts are established in a will.  A revocable trust may also become irrevocable after the death of a spouse.  The primary benefit to the grantor is control of property and protection for beneficiaries.  Oftentimes, there are also significant tax benefits as well.    

Irrevocable Life Insurance Trust - An Irrevocable Life Insurance Trust (ILIT) is a trust designed to keep the proceeds of a life insurance policy outside of the estate and thus free of estate and income tax.  The grantor (owner) transfers money into the ILIT, and the trustee purchases an insurance policy, or the owner transfers an insurance policy to the trust.  When the insured dies, the life insurance proceeds are paid into the trust for the beneficiaries, who are usually the children of the grantor.  The proceeds may also be used to pay federal and state inheritance taxes. 

Revocable Living Trust - A trust that describes how the grantors property should be managed while he or she is alive and how it will be distributed upon death.  It is created and can be changed during the lifetime of the beneficiary.  The three primary benefits of a revocable living trust are:  1) flexibility, 2) protection in the event of incapacity, and 3) avoiding probate, which ensures confidentiality and may be less costly.   

Supplemental Care (Special Needs) Trust - A trust that is created to protect the assets of a physically or mentally disabled person while still allowing them to receive benefits from government sources.  By putting the assets in trust, the beneficiary can receive funds without losing Medicare.  The payout is at the discretion of the trustee who supplements the support the beneficiary receives from state and federal sources.  The trust is usually established by the court, and the trustee usually accounts to the court on an annual basis.

Testamentary Trust - A trust created within a will that becomes effective upon the death of the grantor.