A trust is a vehicle for holding assets. In the United States, trusts are governed by state law. Although the Michigan Trust Code, found in the Estates and Protected Individuals Code, includes certain distinctive features, the basic principles of Michigan trust law are similar to elsewhere in the United States.
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It takes at least three roles to create a trust: a settlor, a trustee and a beneficiary. The settlor is the person who gives assets to the trust. The trustee manages these assets on behalf of the beneficiary according to the terms of the trust. The beneficiary receives trust assets as distributed by the trustee. The terms of the trust are determined by the settlor. The trust may provide for either lump sum or gradual distribution of assets.
To create a trust, the settlor must have legal capacity – he must not be a minor or in a coma, for example. He must indicate a clear intention to create the trust. Normally, the trust must have a definite beneficiary, although exceptions exist in certain circumstances, such as if the trust is charitable. The trustee must have duties to perform, including delivering a Notice of Trust Existence to trust beneficiaries. Although the settlor may name himself trustee, the same party cannot serve as both sole trustee and sole beneficiary. Finally, the settlor must fund the trust with assets. If the assets are titled, they must be titled in the name of the trust.
A trust may be either revocable or irrevocable. A revocable trust is easy for the settlor to revoke, while an irrevocable trust is difficult but not impossible to revoke. Under Michigan law, a trust instrument creates a revocable trust unless the document specifically states that the trust is irrevocable. The income of a revocable trust is taxed to the settlor, while an irrevocable trust pays its own taxes. When the settlor dies, the assets of a revocable trust are considered part of the settlor’s estate for the purpose of assessing estate taxes, but the assets of an irrevocable trust are not.
The trust instrument generally determines the termination date, if any, of a trust. A trust may also be revoked. A settler may revoke a revocable trust by using the method specified in the trust instrument or, if no method is specified, by putting the revocation in writing. If the trust is irrevocable, its beneficiaries may obtain a court order to revoke it under certain circumstances, such as when trust assets are too few to administer effectively, or if its continuation is no longer necessary to achieve its purposes. If the trust instrument appoints a person called a "trust protector," that person may revoke the trust if so authorized by the trust instrument.