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Testamentary Trusts and Wills;
The Basics.

A trust is simply an agreement (e.g. a contract) between a person who establishes the trust (called a “grantor” or “settlor”) and a trustee, with the power and duty to perform or refrain from performing certain acts with respect to property held by the trust, for someone’s benefit (i.e. a “beneficiary”). Trust property, including real estate, equities, cash and other assets, (trust assets are often referred to as the “res” or “corpus”), is typically property formerly owned by the grantor, who transferred legal title to their trust.

“A declaration of trust constitutes a contract between the trustor and the trustee for the benefit of a third party.” Estate of Bodger, 130 Cal.App. 2d 416, 424, 279 P.2d 61, 67 (1955). See also Blair v. Ing, 95 Hawaii 247, 256, 21 P.3d 452, 461 (2001). The benefit of the bargain depends on the parties fulfilling their obligations under the agreement. Estate of Cates, 16 Cal. App. 3d 1, 11⸺13, 93 Cal. Rptr. 696, 701⸺02 (1971).

 

It’s common, at least initially, for the grantor(s), trustee(s) and beneficiary(ies) to be the same person(s). For instance, parents often establish trusts, and name themselves as trustees and beneficiaries, entitled to all the income generated by the trust’s res, and principal as needed for their “health, education and welfare”, with their children listed as “remainder beneficiaries”, who will assume ownership of the res after they die. Their trusts also name someone (typically a son or daughter), as the “successor trustee”, who will become trustee after they die or become legally incompetent.

 

A trust is “testamentary” if it contains terms that govern trust property upon the grantor’s death. A will is by definition a testamentary instrument, which governs how a person’s estate will be divided upon their death. A person who establishes a will is often referred to as a “testator”. A person who inherits by will is called a “legatee”. A person who dies without a will is referred to as a person “who died intestate”, in which case their estate will pass according to the laws of “intestate succession” (in the state where the decedent was domiciled) to persons referred to as “heirs”.

 

Generally, wills are limited to controlling what happens to a testator’s estate upon death, whereas trusts can govern what happens with a grantor’s assets before death, upon death and for decades thereafter. For example, a father of small children can use a trust to provide himself with asset-derived income while he’s alive, direct how the income should be used for his minor children’s benefit after he dies, and specify whether all, part or none of the principal should be distributed amongst them when they become adults.

 

 “Intervivos” is a Latin term meaning “between living persons”, or “from one living person to another”. A “revocable intervivos trust” is a trust that can be revoked by the grantors/settlors while they are alive and legally competent; Such trusts become irrevocable after they die or lack testamentary capacity.

 

"Testamentary capacity has been defined as the ability to know: (1) the nature and extent of the testator or testatrix's estate; (2) the identity of the beneficiaries and their relationship, whether by blood or other circumstances, to the testator or testatrix (i.e., the objects of his or her bounty); (3) the disposition that the testator or testatrix is making; and (4) how these elements relate so as to form a rational and orderly plan for the disposition of the testator or testatrix's estate. See 1 Page on the Law of Wills § 12.21, at 606-09, 614-15 (William J. Bowe and Douglas H. Parker, eds., 1960) (Page on Wills); Wills, Trusts, and Estates, at 149; see also Estate of Adams, 234 N.W.2d 125, 127 (Iowa 1975); Evans v. Liston, 116 Ariz. 218, 568 P.2d 1116, 1117 (Ariz. Ct. App. 1977)";

In re Estate of Herbert, 90 Hawai‘i 443, 454-55, 979 P.2d 39, 50-51 (1999).

Trusts are usually accompanied by so-called “pour over wills”. A “pour over will”, is simply a will with a provision stating that if a grantor has assets not titled to their trust, they are nonetheless trust property, subject to the trust’s terms. In other words, if settlor neglected to register the title of any of their assets in the name of their trust, their pour over will "pours” those assets into their trust when they die.

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