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Understanding Grantors and Trustees, Let’s Talk!
Grantors form trusts. Trustees run the trust. These jobs seem simple, but like most jobs, there is much more behind the title.
Being designated as a trustee or successor trustee should raise questions in your mind. Trustees owe beneficiaries a fiduciary duty. Plus, they have personal liability for trust asset damage. Professional trustees take no action without their attorney’s advice. You should use their caution as a guide. Consult with a trust attorney and understand all trust terms before accepting the job.
Successor trustees don’t need to do anything until the initial trustee has died or resigned. But, the assumption is that you will quickly step into the initial trustee’s shoes. Don’t accept the successor trustee job unless you are comfortable with serving as the trustee on short notice. Often, this is the initial trustee’s death.
If your position is an initial trustee or successor trustee, you must be aware of and understand your duties and responsibilities. Understanding Grantors and Trustees is essential before you take on a fiduciary position.
What is a trust?
The trust is formed when the grantor names a trustee to hold an asset for a beneficiary. A trust is a legal document that can “own” assets, pay taxes, and hire employees. But the trust is a piece of paper, so it needs the trustee to be the “human personification” who projects the trust into the world.
If the trust’s design is as a will replacement, it will look much like a will. A will replacement trust often includes instructions describing who handles the grantor’s final affairs and who receives his or her assets after death.
There are different kinds of trusts, including:
- Testamentary trusts (created in a will after someone dies)
- Revocable living trusts (can be changed or altered as long as the grantor is still living)
- Irrevocable trusts (usually cannot be changed)
Many people use a revocable living trust in their estate plan in place of a will because it avoids probate.
Further, revocable trusts are useful in managing assets if the grantor becomes incapacitated. As long as you are alive and capable, you can change your revocable trust document, adding or removing assets, or even canceling it. Follow this link if you wish to learn more about Revocable Living Trusts.
How does a living trust work?
A Revocable Living Trust only controls what it owns. If you form the trust and don’t put anything into the trust, it is an empty shell. The grantor must transfer assets into the trust. For example, file a deed moving a house from the grantor’s name into the trust. Once in the trust the trustee manages the house. The same steps are necessary for stocks, bonds, or a checking account.
With a Living Trust, the grantor keeps the power to alter or make changes to a trust. The named trustee manages the assets that are in the trust. Grantors often choose to be their own initial trustee. If your goal is avoiding probate, but you are currently competent, you don’t need another trustee until your death.
Married couples can set up one trust together and are considered co-grantors of their revocable trust. Married couples are often co-trustees. When one dies or becomes incapacitated, the surviving partner can continue handling their finances with no other actions or.
A successor trustee is a person or sometimes an entity named to step in and manage the trust when the original trustee is no longer able to continue. If the initial trustee dies the successor’s job immediately begins. Generally, the trust names at least one successor trustee. Sometimes two or more adult children serve as co-trustees. Sometimes, it is better to hire a corporate trustee, such as a bank or trust company. Or, it might be a combination of the two.
Understanding Grantors and Trustees:
All this can be a bit overwhelming and confusing, so to get more information about how a trust can work for you. It is easy to schedule a consultation with a qualified trust lawyer in Cherry Hill, NJ.
Hopefully, this article about Understanding Grantors and Trustees was useful to you.
Contact Klenk Law for their insight into estate planning and grantors and trustees.