Requirements for a Irrevocable Family Trust Agreement

By David Carnes

An irrevocable trust is an arrangement whereby a grantor relinquishes legal ownership of property and places it under the administration of a trustee, who administers it for the benefit of the trust beneficiaries. A family trust is a trust in which the beneficiaries are all relatives of the grantor. A grantor creates a trust deed by drafting a deed of trust and signing it. A deed of trust does not require the agreement of trust beneficiaries.

An irrevocable trust is an arrangement whereby a grantor relinquishes legal ownership of property and places it under the administration of a trustee, who administers it for the benefit of the trust beneficiaries. A family trust is a trust in which the beneficiaries are all relatives of the grantor. A grantor creates a trust deed by drafting a deed of trust and signing it. A deed of trust does not require the agreement of trust beneficiaries.

Revocability

In most states, a trust is presumed to be revocable unless the trust deed specifically states that it is irrevocable. Since the assets of a revocable trust can be reached by your creditors, it is important to state that the trust is irrevocable. To the extent possible, you should title all trust assets in the name of the trust — by opening a bank account in the name of the trust, for example — and list the trust's initial assets and dates of transfer in the trust deed.

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Beneficiaries

The beneficiaries (family members in the case of a family trust) should be listed by name in the trust deed. It is acceptable to name yourself as a beneficiary. Assets may be distributed to beneficiaries in lump sum, through regular periodic payments, or at the discretion of the trustee. When planning distributions, take into account the fact that creditors of a beneficiary may not reach trust assets until they are actually distributed to the debtor beneficiary.

The Trustee

The trust deed should appoint a trustee and an alternate trustee, after you obtain their consent to the appointments. A trustee may be an individual or a company, such as a bank or a trust company. The disadvantage of using an individual as a trustee is that if the trust is set to endure for many years, the trustee will have to be changed when the original trustee dies. Companies, by contrast, may exist beyond the lifetime of any individual. The trust deed should tell the trustee how to distribute trust assets, and define the trustee's discretionary authority, if any. It is acceptable to name yourself as trustee.

Assets

Your creditors may attempt to reach trust assets by claiming that your transfer of assets to the trust was a fraudulent attempt to avoid your debts. Consequently, you should transfer assets to the trust in a manner that raises no doubt about the legitimacy of the transfer. A transfer of assets may be deemed fraudulent (and reversible by court order) if you were insolvent at the time of the transfer, if you became insolvent because of the transfer, or if you anticipated immediate creditor collection action at the time you made the transfer.

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How to Create a Legal Trust

References

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Rights of the Beneficiary of a Family Trust

A family trust is a trust in which the beneficiaries are family relations of the grantor. Since the assets of a revocable trust legally belong to the grantor, beneficiaries have no rights in trust assets that are not subordinate to the grantor's right to unilaterally revoke the trust. The assets of an irrevocable trust, by contrast, legally belong to the beneficiaries subject to the trustee's fiduciary authority. Trust beneficiaries enjoy certain rights under state law.

How to Terminate a Living Trust

Any trust that you establish during your lifetime is a "living trust." Living trusts can be revocable, which means that the person creating the trust, known as the "grantor," can terminate it during her lifetime. However, living trusts can also be irrevocable, which means the grantor cannot terminate the trust. In this case, the trustee can terminate the trust, but only in the manner specified in the trust – for example, after all the assets have been distributed.

Can a Husband Be a Trustee for His Wife's Irrevocable Trust?

Once an irrevocable trust is established and funded, it may not be modified or terminated without the consent of the trust beneficiary. Hence it is critical to set up the trust very carefully. An attorney can explain your options and should be consulted. Because the role of the trustee is to administer your trust, you should carefully consider whom you choose. Anyone can be the trustee of an irrevocable trust, including your spouse.

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