Express Trust: Everything You Need to Know
An express trust, also known as a direct trust, is a type of trust that is created purposefully and intentionally instead of being imposed by a court. 3 min read
An express trust, also known as a direct trust, is a type of trust that is created purposefully and intentionally instead of being imposed by a court. A trust is a legal arrangement in which the trustee controls finances or property for another person, who is the beneficiary, generally until the beneficiary comes of age. The person creating the trust is a grantor, trustor, or settlor.
What Is an Express Trust?
Trusts are divided into two categories:
- Express trusts
- Non-express trusts
Express trusts are defined by the creator of the trust. They are also governed by three certainties or elements:
- Subject matter
- The object
Express trusts are essentially designed with the expressed intention of the settlor in mind. By contrast, non-express trusts are divided into either resulting trusts or constructive trusts, which may be forced upon individuals in court. Constructive trusts are imposed on a wrongdoer who acquires property legally belonging to someone else. The wrongdoer becomes the trustee and has a duty to return the property to its true owner.
In an express trust, the creator of the trust distributes funds or property to an individual (the trustee) who then holds the property in trust for the person meant to receive the property. You can create an express trust through a legal document that fulfills the various requirements for establishing a valid trust.
A valid trust may be created to benefit a charity, a pet, or more often a family member. One of the biggest benefits of distributing a trust is to pass on assets while minimizing estate, gift, and income taxes.
Since there is no uniform trust legislation on the federal level, individual states are responsible for governing trust establishment and maintenance. However, the Uniform Probate Code (UPC) has been adopted by more than 30 percent of states and is a code which outlines provisions related to trusts and wills.
Express trusts are used in various contexts, most commonly in charitable gifts and family settlements.
How to Create an Express Trust
A settlor can create an express trust if they have a valid reason for transferring property to a trustee. The trustee will then distribute the property to the beneficiary when terms of the trust are met.
There are a few definitions to keep in mind when establishing an express trust:
- Settlor: the person who creates the trust and transfers the property to the trustee
- Trustee: the individual or legal entity who maintains the trust property and gives the beneficiary distributions according to the trust terms
- Trust property: any type of real, personal, tangible or intangible property (i.e., money, artwork, a home, or other valuables)
- Beneficiary: the person, group, pet, or organization who receives the trust property
- Trust purpose: every trust must have a valid, legal purpose for existing, which could include for supporting education, protecting assets, planning taxes, or contributing to charity
Once you've identified each of these categories, you can create your trust with the help of legal counsel.
Types of Express Trusts
An express trust can take various forms. The most common categories include:
- Living trusts
- Revocable trusts
- Irrevocable trusts
- Fixed trusts
- Discretionary trusts
A living trust, also referred to as an inter-vivos trust, is established for a beneficiary during the settlor's lifetime.
Revocable trusts allow the settlor, or creator of the trust, to retain control. The settlor doesn't receive tax benefits, but may withdraw funds from the trust, or cancel or alter it at will.
Irrevocable trusts give complete control over the trust to the trustee, who is the person responsible for maintaining the trust. Irrevocable trusts do not end until the trust purpose is fulfilled, and the trust can only be changed with the consent of all beneficiaries and the trustee.
Discretionary trusts give power to the trustee, who can decide when and if to distribute the property to the beneficiaries. This type of trust can provide tax benefits to the beneficiaries because the beneficiaries have no interest in the trust assets until the trustee decides to distribute them.
Fixed trusts allow beneficiaries to receive funds or trust property on a set schedule as decided by the settlor. The trustee doesn't have any say in how or when to distribute the property.
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