What is a trust agreement or a declaration of trust?

Declarations of trust are legal documents that set forth the terms and conditions of the trust. The differences between them are largely matters of style and local practice. They’re typically used to protect and divide real property upon the passing of one party. The legal owner isn’t necessarily the same as a trustee.

What are trust documents? The average reader may think of trust funds designed to become active once a child hits a certain age or meets set requirements. Many people set up trusts for tax and inheritance purposes under the name of the person passing on the trust property. All trusts are based on set provisions.

What Are the Provisions of a Trust Agreement?

A trust agreement is set up with certain provisions for the trust owner, trustees, and other parties. Typical provisions in a trust agreement or declaration of trust for an individual or married couple include a statement of the purpose of the trust, the names of the trust creator’s family members, information on whether the trust creator or anyone else may amend or revoke the trust, who will serve as the initial trustee(s), and who will replace the initial trustee if s/he is unable or unwilling to serve, in the event of illness, death or for any other reason.

Trust agreements also typically contain provisions for what powers the trustee(s) should have, both in terms of investment and in terms of management. They also stipulate the discretion the trustee is to have in terms of releasing money to beneficiaries, such as for educational purposes, and more.

One of the most basic provisions every trust has is whether is revocable or irrevocable. In other words, can the grantor cancel or amend the trust at any time, or do they need the permission of named trustees? Typically, a revocable trust becomes irrevocable after the deaths of the grantors.

What Is the Role of Trust Agreements in Estate Planning?

A trust document won’t face too many restrictions or legal requirements in most cases. The courts do sometimes deal with challenges to trust changes the same way they would with a will. In general, grantors do more work early on to make their intent clear.

Some people do it while young to prepare for future possibilities. Others only do it as they accrue more wealth and at a later age. When done properly with the help of an experienced estate lawyer, a trust instrument can ease the transfer of real property after death or at a certain age for the beneficiaries. They can also reduce tax burdens in some areas.

How Does a Certificate of Trust Play into Property Management?

Whether you have a joint owner of single registered owner, any assets divided in a trust document must be named and registered under that trust. For example, if you wanted to put your home under your trust, you would record with the state under your trust’s name. This can be done when buying, refinancing, or independently when your trust is written. Other property would need to have the legal title under the trust.

Once a trust document is activated by the death of the owner, it will lay out things like how the mortgage is to be paid. Generally, lenders will ask for the full trust agreement to ensure they know how their side will be paid before agreeing to a loan.

If you have further questions about trust agreements or estate planning, view the following section on FreeAdvice.com containing articles about setting Up a Trust, or consult with a qualified estate planning professional in your area.

Case Studies: Trust Agreements and Declarations of Trust

Case Study 1: The Johnson Family Trust

The Johnson family, consisting of Mark Johnson, his wife Lisa Johnson, and their two children, Emily and David, decided to establish a trust to protect their assets and ensure a smooth transfer of property in the event of their passing. The trust agreement included provisions stating the purpose of the trust, the family members involved, and the conditions under which the trust could be amended or revoked.

It also designated Mark and Lisa as the initial trustees and outlined the process for replacing them if necessary. The trust agreement granted the trustees certain powers, including the management of investments and the release of funds to beneficiaries for educational purposes.

Case Study 2: The Smith Charitable Trust

Mr. Robert Smith, a wealthy philanthropist, created the Smith Charitable Trust to support various charitable causes close to his heart. The trust agreement outlined the purpose of the trust and identified the charitable organizations that would benefit from its assets.

Mr. Smith made the trust irrevocable to ensure that his philanthropic intentions would be fulfilled even after his passing. The trust agreement also specified the initial trustee and a provision for the replacement of the trustee in case of incapacity or unwillingness to serve.

Case Study 3: The Wilson Real Estate Trust

Sarah Wilson, a real estate investor, established the Wilson Real Estate Trust to manage her extensive property holdings. The trust agreement included provisions for the transfer of properties into the trust’s name, ensuring that each asset was properly registered and held under the trust.

It also outlined how the trust would handle property management, including the payment of mortgages and other financial obligations. Lenders required a copy of the full trust agreement to assess the trust’s ability to fulfill its financial commitments.