An Overview of Trust Terminology

A trust is an entity authorized by law which:

  • allows one or more individuals,
  • to hold and distribute property,
  • contributed by one or more individuals,
  • on behalf of one or more individuals.

The individual or individuals holding and distributing the property is referred to as the Trustee. A trustee is a fiduciary, which means that he (or she) is acting in the best interest of someone else.

The person for whose benefit the property is held is the beneficiary. The trustee must deal with the property in a manner that is in the best interests of the beneficiary.

The person that contributes the property to the trust is the Grantor, also know as the Settlor, or the Trustor. The Grantor also decides the terms of the trust agreement which are the rules by which the Trustee handles the property.

In any one trust, there can be more than one trustee, beneficiary , or grantor. In certain cases, a beneficiary may also be a Grantor, a Trustee, or both.

Trust may be created for many different reasons. Texas law authorizes trusts with a wide variety of provisions.

When property is contributed to a trust, the trust becomes the legal owner of the property. If the property is land, the title to the property will be held in the name of the trust.

Reasons for Trusts

Protect individuals from wasteful spending

There are many reasons for individuals to establish a trust. One common reason is to help protect someone from squandering a large sum of money. For example, an individual is concerned that after they pass, their children may quickly exhaust their inheritance unwisely. Rather than leave it to their children outright, they might create a trust which only allows periodic distributions of a portion of the funds.

Benefiting Chldren

Likewise, if their children are minors, they might create a trust to provide for their needs until they reach adulthood.

Avoiding Probate

Trust are used as a means of avoiding probate. These is done by placing all of the property owned by an individual into a trust. When the person dies, the property is distributed in accordance with the terms of the trust. If the individual does not own any property at death, then there is no need to probate their estate. This is often referred to as “Living Trust.”

Controlling Property

A trust can also be created by someone that has an interest in controlling property even after they pass away. Certain property can be placed in trust and the uses of the property restricted to purposes set forth in the trust agreement.

Debtor Protection

A trust can be used to protect property from the creditors of a beneficiary. A creditor cannot claim property owned by the trust to satisfy debts owed by the beneficiary.

It should be noted, however, that this protection only extends while the property is owned by the trust. Once the property is distributed to the beneficiary, it is subject to the same collections procedures as any other property of the same type which the debtor owns.

It should also be noted that Texas law does not extend protection from creditors to trust property held ia trust in which the debtor is the grantor. Simply put, you cannot place property in a trust in order to protect the property from your creditors.

Thank you for your interest in these articles. Please remember that these articles are designed to provide general legal information and may not apply to specific legal situations. Legal matters can be complicated by issues outside of the scope of our articles. Publishing these articles does not constitute legal advice on the part of Davis McCown, Attorney at Law. Neither review of any article, nor use of the information provided, constitutes an attorney/client relationship. It is recommended that all estate planning documents and decisions be discussed with a qualified attorney.