Trusts began in England in the Middle Ages. The Statute of Uses is a law enacted in 1536 under King Henry VIII. The Statute of Uses is the basis of trust law in England.  From England, the concept of trusts came to America with the colonists.  Thus, even though most of us have been hearing about trusts for only the last 10 or 20 years, trust law has been established for centuries.

A trust is created by a legal document which is usually called a “trust agreement.”  Many trust agreements are 20 to 40 pages long.  They can be shorter or longer.

There are 3 main roles that people play in a trust.  The person who puts his property into the trust is called the “Settlor,” because he is settling his affairs in regard to that property. In some trust documents, the Settlor is called the “Grantor” or “Trustor.”  The Settlor puts his property into the trust by giving it to a person who is called the “Trustee,” because he is being trusted by the Settlor.  The Trustee holds the legal title to the property and can sell the property, manage it and invest it.  However, the Trustee cannot take the property for himself or use it for himself.  The Trustee has a strict duty to take care of the property and to give it to or use it for a person who is called the “Beneficiary” because he benefits from the trust.

The Settlor and the Trustee both sign the Trust Agreement.  The trust becomes active or “funded” when the Settlor puts property into the name of the Trustee.  The property can be anything of value:  land, house, bank accounts, stocks and bonds, mutual funds, jewelry, etc.

The Trust Agreement usually gives the Trustee broad powers, so that the Trustee can do almost anything with the trust property.  The Trust Agreement also names the Beneficiaries and says how and when the Trustee is to give or “distribute” the property to the Beneficiaries.  Many trusts say that when the Settlor dies, the Trustee will distribute the trust property to the Settlor’s spouse or children.  Some trusts require the Trustee to give to the Beneficiaries whatever amount of money he decides is needed by the beneficiaries for their health, education, maintenance or support.  This kind of trust can be very useful when the beneficiaries are young children or for other reasons are not able to handle their own finances well.

Most of the trusts people have are “self-trusteed revocable living trusts.”  In this kind of trust, the Settlor gives property to himself as Trustee, to hold for the benefit of himself, the Beneficiary.  The same person is in all 3 roles.  As Trustee, he has full control of the trust property and can invest it and manage it himself.  He can also distribute to himself as Beneficiary any amount or all of the trust property at any time.  He has full control of the trust, has full use of the trust property and yet, technically, he doesn’t own the property – the trust does.  Therefore, if he dies, the property does not have to go to court for probate.  The Trust Agreement says who the next Trustee or “Successor Trustee” will be when the Settlor-Trustee-Beneficiary dies, and also says who the next Beneficiaries will be.  When the Settlor dies, the Successor Trustee gives the property to the Beneficiaries, without having to go to court for probate.

This kind of trust is called a Revocable Living Trust.  It is “Revocable” because the Settlor can “revoke” or cancel the trust at any time and take his property back; “Living” because it is created while the Settlor is living, as opposed to a “testamentary trust” which is created by a will when a person dies; “Trust” because the Trustee is being trusted to hold property for the Settlor.  In the future I will explain other kinds of trusts.