By Quinton Swanson, MFLC Probate Attorney, Hemet branch.

One of the biggest reasons a person seeks out a Probate (Estate Plan) attorney is to help them with their trust. I’ve been a Probate attorney out in Hemet for 14 years, and I have seen almost every way a trust can be botched, either by an attorney or by the client. Part of the problem is a simple lack of understanding of what a trust actually is. So read on. This two-part article will talk about the history of trusts and the common pratfalls you might encounter with your trust.

What is a trust?

To understand what a trust is we must go back to the middle ages. Long ago and far away in jolly old England were monks, nuns and priests, who had taken vows of poverty. They had promised God and the Pope in Rome, that they would “own” nothing. But even if they “owned” nothing they still needed to “use” things: the land to grow their crops to eat, the buildings in which they lived and held meetings. Now, these religious professionals had many people willing to “give” them things in exchange for prayers and other services, but how do you “use” what you don’t “own”? And how do you give to someone who cannot own?

The English Parliament solved the problem with “The Statute of Uses.” In this act they established a system whereby the law would create a relationship between three parties. The first was the giver. They called this person the “Settlor.” Another party was the receiver, what they called the “Beneficiary.” And in the middle was the “Trustee.” The Settlor would give the thing to the Trustee, who would control the thing, but he would not use the thing, because it was not for his benefit. He would just control it for the benefit of the Beneficiary. The beneficiary would get to use the thing, but he did not “own” the thing because the thing would be owned by the “fictitious non-corporal person” known as the “Trust.” The trust was not any one person but the relationship between these three persons. Under the law the terms of this relationship would be set down in a document known as a Trust Declaration, or Trust Decree, in the case of land a Deed of Trust.

Somewhat later, with the development of credit, a sticky situation developed.

Ideally, a Creditor wants the money right when it’s owed. In the event that the ower has no money, the Creditor wishes to be paid by seizing items that the debtor “owns.” But people don’t want things taken while they are alive; they still need to “use” them. Hundreds of years ago, in early America, the debtors went to the Government and the Government made laws. These laws say, “Look, Creditors. You can’t have stuff while the people are alive. Your interest is not “secured.” You made them the loan and now you must wait for them to pay, or you must wait for them to die, and then you can take their things.” These are called debtor protection laws.

But the Creditors said, “How will we know when people, who owe us money and “own” things that we can take, die? ” So the government created “Probate Administration,” a cumbersome process that involves notices, publications, and court hearings and delays, and fees. All designed to make sure that everybody knows when a person is dead, and that they have this chance to fight over who gets what.

This went on for a while until modern people started thinking and saying, “Wait. I have things. And when I die I want my kids to have my things. But I don’t want them to have to go through this Probate Administration process. I don’t want all the notices and mess. I want an easier way.”

What does this have to do with trusts? Well, in the 1970’s, the people went to lawyers, and they asked the lawyers, “How can we “plan” ahead for when we die so that the Creditors don’t take our money?” And the lawyers thought way back and said, “Well what you want is a way to “use” things but not “own” them. Because if you “own” them, and you die, they might have to go through Probate. We will reach into the past and pull out this ancient arrangement of characters called a trust and re-tool it for a modern purpose.”

Under the new arrangement, the “Settlor” would write up a document whereby they “give” things to themself as “Trustee” for the benefit of themselves during their lifetime. They would be a “Lifetime Beneficiary.” But then at death they would not “own” the things because the things would be owned by this relationship set out in this document, the Trust Declaration. So because the dead person did not own the things, the things would not be subject to the process of Probate Administration. The things would pass through a process that didn’t involve as many filings and fees and no publication or notice to those mean old Creditors. But what would happen to the things? Well, the Trust Declaration would name new characters the “Successor Trustee.” The “Successor Trustee” would not own the things but it would be their job to get the things from the control of the now dead “Trustee” and out of the use of the dead “Lifetime Beneficiary” and into the ownership of the “Successor Beneficiaries,” the kids who want the stuff after the people die.

In other words, when property is “owned” by a trust, it isn’t owned by people. Since Probate and Creditor law was designed to deal with people, the trust is a handy tool to avoid entanglements with wither.

And the people said, “Thank you, lawyers, for giving us this wonderful way of protecting our things. Of using them and but not owning them. Of giving them, but still keeping them. For this unseen fictitious non-corporal person known as my trust who protects my things and makes sure I use them and my kids use them and that they don’t go to those Creditors or through that process of “Probate Administration”.”

This makes for a cute story, but the trust is only as good if the attorney drafts it properly, addressing both legal concerns and your concerns. Moreover, there are some basic mistakes I have seen time and time again that make a trust essentially worthless. In my next article, I’ll discuss how to avoid these mistakes.

Disclaimer: The information provided in this blog is for general informational purposes and it should not be relied on as legal advice. An attorney-client relationship is not formed by reading the information on this site and can only be formed by a written agreement that sets forth the scope of the relationship and the fee arrangement.

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