MSTR Cat

Trust Law/Level I · The idea of a trust/1.1 Three roles/Lesson 7

What a trust is not: wills, contracts, companies

Why a trust is not a will, contract, company, or power of attorney

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. For incapacity, a free statutory power of attorney often replaces a trust: under the Uniform Power of Attorney Act it is durable by default (§104), and a notarized statutory form must be accepted or questioned within seven business days (§120); it ends at death.
  2. In England and Wales a lasting power of attorney costs £92 to register (£184 for both types), with a reduction for incomes under £12,000; it cannot be used until the Office of the Public Guardian registers it.
  3. Keep assets off the probate record without a trust: payable-on-death and transfer-on-death designations pass outside the will, while probated wills are public (a copy costs £16 in England and Wales); designations override the will, so keep them current.
  4. A will can cost nothing: California accepts a will whose signature and material provisions are in the testator’s handwriting, witnessed or not (Probate Code §6111); like any will, it still has to pass through probate.
  5. Form an LLC only when you need a separate legal person, such as for a business; for passing family assets a trust or beneficiary designation usually suffices without an entity’s state filings and annual reports.

Materialsa copy of your current will (if you have one)a sample power of attorney form (many are free online)a sample certificate of formation (articles of organization) for an LLCa bank statement showing a ‘payable on death’ designation

Wonder

  1. What happens to my house if I am alive but unable to make decisions?
  2. If I set up a trust for my children, can they go to court to enforce it even though they never signed anything?
  3. Can a trust be sued in its own name, the way a company can?

Explore

  1. A will speaks only at death. It says who gets what after you die, but it does nothing while you are alive, so it cannot help manage your affairs if you become unable to. A trust can hold and manage property during your life and continue after death. In the United States, a living trust avoids probate only for assets actually transferred into it. Property left in your own name, with no beneficiary designation or joint owner, usually goes through probate whether or not you have a will.
  2. A contract is a bargain. In common-law countries such as England and the US, a promise is generally enforceable as a contract only if each side gives something of value, called ‘consideration’. A trust needs no consideration: once a settlor has transferred property to a trustee, the trust is binding even though the beneficiaries gave nothing. Beneficiaries can also go to court to enforce it although they never signed anything. With a contract, traditionally only the parties can sue, though many places now let a named third party enforce some contracts.
  3. A company or limited liability company (LLC) is a separate legal person. It owns property, signs contracts, and sues or is sued in its own name. An ordinary trust is generally not a legal person. The trustee holds legal title to the property for the beneficiaries, so in most common-law systems a claim about trust property is brought by or against the trustee. Some statutory and business trusts are treated more like entities; Level VII covers them. For family planning, a trust is best seen as a relationship, not a corporate body.
  4. A power of attorney appoints an agent to act for you while you are alive, and it ends when you die. In many places an ordinary power of attorney also ends if you lose mental capacity, unless it is a special kind made to survive that, such as a durable power of attorney in the US or a lasting power of attorney in England and Wales. A trust works differently. A living trust can continue after the settlor’s death, usually becoming irrevocable, and a trust created by a will begins at death. Either way, the trustee keeps managing the property for the beneficiaries.
  5. Privacy differs too. In England and Wales, once probate is granted, the will becomes a public record and anyone can order a copy. In US states, a will filed with the probate court is generally a public record as well. The terms of a living trust that never goes to court usually stay private, between the trustee and the beneficiaries. Private does not mean hidden from the government: trusts must still file tax returns and make reports where the law requires them.
  6. Who holds title is the key difference. With a company, the company itself owns the property. With a contract, each party keeps what it owns and simply promises to do something. With a trust, the trustee holds ‘legal title’ while the beneficiary holds the ‘beneficial interest’. This split lets the trustee manage property that is not theirs to enjoy. If one person is both the sole trustee and the sole beneficiary of all present and future interests, the two titles merge and the trust ends.

Key facts

  • A will only takes effect upon death; a living trust can manage assets during the settlor’s lifetime.
  • Trusts do not require ‘consideration’ to be valid, unlike contracts which demand mutual exchange of value.
  • In England and Wales, a will becomes a public record once probate is granted; US wills filed for probate are generally public too, while trust terms usually stay private.
  • A power of attorney ends at the principal’s death, and an ordinary one may end on loss of capacity; a trust can continue after the settlor dies.
  • An LLC is a separate legal person that owns property; a standard trust is not, as the trustee holds title for beneficiaries.
  • Beneficiaries can enforce a trust in court even though they never signed it; under traditional contract rules, only the parties to a contract can sue.

Exercise nine, six, three, one

9CollectGather 9 documents or examples, your own or free samples found online: 1. A will. 2. A power of attorney. 3. An LLC certificate of formation or operating agreement. 4. A bank account with a ‘payable on death’ designation. 5. A retirement plan beneficiary form. 6. A deed to property owned by one person. 7. A contract for services. 8. A trust document or certification of trust. 9. A deed or account titled in a trustee’s name.
6ClusterSort the 9 items into 6 categories by type of tool: will, power of attorney, contract, company, trust, and beneficiary designation or direct ownership.
3DistillReduce the 6 categories to 3 by asking who holds the property: you personally, a separate legal person (a company), or a trustee for someone else. Note which documents fall into each.
1CrystallizeWrite 1 sentence that explains why a trust is distinct from a company based on who holds the legal title to assets.

Fact check

Dates, figures and claims checked against the published sources listed below.

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