Oftentimes, the word “trust” is tossed around without fully knowing what one actually is. We hear about “trust fund babies,” we see trusts associated with wills, and we sometimes picture a trust as a vault holding items for someone else. These uses can help us a bit in understanding what is a trust, but let’s drill down a bit to see what it is under the law.
A trust is a way for individuals to manage property. There are multiple reasons why people create trusts. Most often, trusts used to protect and control the distribution of assets. The trust funds can be distributed for a specific purpose or at specific intervals to ensure certain outcomes. For example, trusts can be created to protect assets from future creditors. A trust may also be created to ensure that beneficiaries do not spend all their money at once or to ensure that the special needs of individuals are met. Trusts may also reduce the time spent and cost of probate as well as limit tax burdens.
Trusts can be created several ways under Ohio law. When possible, trusts should be created in writing to clearly express and state the purposes and duties of the trustee. The first way to create a trust occurs when property is transferred by one person (called a “settlor”) to another person acting as a trustee while the settlor is alive or in writing after the death of the settlor. The second way is through a declaration by an owner stating that he is holding property as a trustee. A trust may also be created through a power of appointment or through a court order.
In order for a valid trust to be created, the settlor must have the mental capacity needed to create the trust and must indicate an intention to create the trust. This is, of course, unless the trust is created by a court order. This is because the legal rights to the property are being transferred to the trust for the benefits of individuals called beneficiaries.
A trust can be a valuable tool in your family wealth management plan. However, it is always important to understand the consequences of creating and funding a trust. How a trust operates and what it can do ultimately depends on how it is written. Therefore, it is always important to discuss trust creation with a professional to ensure that your goals are met.