Trust Creation:
In the usual situation, the person who creates a
trust (variously called the "donor," "grantor" or
"settlor") conveys legal title "in trust" to a body of
his or her real or personal property or money (the
"corpus") to a third party, (the "trustee"), perhaps a
close friend, professional financial manager or a bank
trust department, to be managed or invested by that
trustee for the benefit of a named person or persons,
the "beneficiary." Thus the burdens of property
ownership and management fall to the trustee, while the
benefits go to others, the beneficiaries.
The act of trust creation immediately transfers
the legal title and absolute ownership of the trust
property or "corpus" from the grantor to the trust.
Assuming there is no fraudulent intent, this means the
grantor's creditors cannot reach the transferred
assets. Control of these trust assets henceforth is
vested in the trustee, so long as the trust exists.
The trustee's powers and duties can be broad or narrow,
according to the terms of the trust declaration, the
basic "master plan" authorizing and creating the trust,
but they should carefully reflect the grantor's
intentions as to how the objectives of the trust are to
be achieved and how it is to operate.
The grantor may also be the trustee, or one of the
trustees, but such an arrangement imposes a strict duty
against self-dealing and conflict of interest, lest the
validity of the trust itself be called into question by
creditors, tax authorities or the courts. In almost
every instance it is better to avoid potential legal
challenges by not having the trust grantor act as
trustee. This appropriate distance between grantor and
trust is not absolute, since the grantor can retain the
right to designate or change the trustee at will. The
grantor may also be a beneficiary of the trust.
Trust beneficiaries receives only an equitable
title to the income or assets of the trust, but this
allows them to seek judicial intervention as a matter
of right if there is reason to believe the trust is
being administered improperly or the assets dissipated.
