Laws Relating to Trusts and Trustees
Each state has its own trusts and estates code in which laws pertaining to trusts are found. Numerous states have adopted the Uniform Trust Code, either entirely or in part. The Uniform Trust Code was created by the National Conference of Commissioners on Uniform State Laws in 2004 in an effort to standardize state laws throughout the U.S. Ultimately, there is no single governing code. However, certain aspects of trust law are applicable in nearly every state.
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Trust Overview
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A trust is a way for individuals, or "settlors," to distribute property to intended beneficiaries during the settlor's lifetime or after his death. Trusts are managed by a trustee who oversees and administers the trust for the benefit of named beneficiaries. Beneficiaries may be children, siblings, a spouse or a charitable organization. A trust cannot exist without funds, or what is known as the "res," because a trust is a method of managing, or disposing of, trust property. Trust res can be any interest in property such as royalties, leasehold interests or life insurance policies. Anything that is considered property may be placed in a trust. However, money is more likely to be placed in a trust than personal property.
Trustees
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Trust law in every state requires a trust to have a specified trustee. Trustees can be financial institutions, attorneys, friends or family members. Trustees are fiduciaries, meaning they have a duty to administer a trust in a responsible manner and to protect a trust's assets. Trustees also have a duty to provide accounting to named beneficiaries of the trust. Discretionary trusts give the trustee decision-making authority regarding when trust monies are distributed and how much is distributed.
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Ascertainable Beneficiaries
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Trusts require ascertainable beneficiaries. "Ascertainable" means beneficiaries must be a determined class of people or specific animals. According to the Uniform Trust Code Section 402(a)(3), definite beneficiaries can be pets or a charitable organization. Beneficiaries typically must be 18 years of age to have funds distributed to them. However, discretionary and educational trusts can be used for the benefit of minors if the trust instrument calls for payment of tuition, books and other school-related costs.
Other Trust Laws
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According to the Uniform Trust Code Section 406, trusts created by undue influence, fraud or duress are void. Undue influence occurs when a person creates a trust against his will due to threat of physical confinement, violence or other means. Section 407 of the Uniform Trust Code states that an oral trust is valid if its terms are established by "clear and convincing evidence." Section 403 of the Uniform Trust Code explains that trusts created in other states are valid if they comply with the laws of the state where the trust was executed.
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