What Is A Trust?

A trust is a relationship created to manage funds.  It is created whenever one person (a “settlor”) delivers to someone else a financial resource—like a house, a bank account, an insurance policy, or any other property of value—with an understanding that the receiver (the “trustee”) will hold the property, manage it and use it for a “beneficiary.”  The beneficiary can be either the settlor (this is called a “self-settled” trust), or someone else who is named by the settlor to be the beneficiary (this is called a “third-party” trust).

While a trust can be created by words alone—not even a handshake is actually required!—good practice is to always draft a “trust agreement” that spells out how the trustee is expected to care for the property, and how the trustee should use it for the beneficiary.  All of the trusts that are managed by Guardian Community Trust are established by written instruments.

Working With Counsel

Usually the settlor should have qualified legal counsel when creating a trust.  Trusts are legal documents, and they establish legally binding relationships.  While many individuals understand perfectly well the terms and provisions of the trust, sometimes the reasons for certain provisions are not obvious, and often the full consequences of particular language may be difficult to predict, even for those very familiar with trusts.  We are always happier when we know that a prospective new beneficiary is well-advised.

The objective when creating a trust is to allow the settlor to design instructions (i.e., terms and conditions) for the trustee that will direct the use of the assets for the purposes that the settlor wants to achieve.  In many ways, a trust is like a will, except that, unlike a simple will, a disability trust directs the trustee to use the assets for the beneficiary, instead of giving the assets directly to the beneficiary.  A good trust provides clear instructions that guide the trustee to use the assets just in the way the settlor intended.

No matter how well-written a trust may be, its terms and provisions can only be as effective if the trustee follows them faithfully.  The full force of the law is available to enforce trust provisions, particularly against theft of trust property.  But there is no substitute for having a qualified and reliable—“trustworthy”—person or entity as trustee.