Trusts provide an alternate way to convey property and can be useful to ensure the distribution of property before and after one’s death. Some of the more common types of trusts are the insurance trust, educational trust, charitable trust, trust for the benefit of minor children and family income trust. In a trust, a trustee manages and holds assets for the benefit of a beneficiary as set forth in the legal instrument of the trust. In that regard, the beneficiary does not actually own the assets of the trust, but instead has a right to benefit from the trust. The trustee owes what is called a “fiduciary duty,” meaning that the trustee has a duty of loyalty to administer the trust solely for the benefit of the beneficiaries. This involves keeping adequate records and accounts. In that regard, courts have found that when a trustee breaches a trust, she is responsible for any profits the trustee personally received, any profits owed to the estate or any loss or depreciation of value of the estate.
An express or technical trust requires the following elements: an intent to create a trust relationship, a declaration of trust, a trustee, specific property dedicated to the trust, and a definite beneficiary. People use trusts to have more control than the defaults of law provide. When a beneficiary of a trust does not obtain his or her interest in the property before the death of the one making the trust, the trust needs to comply with the statute of wills. A trust must be in writing, especially if it’s involving real estate. According to New Jersey statute, a trust can even be created for one’s pets.
Case law states that “general principles governing the interpretation of a trust instrument are the same as those which govern the interpretation of instruments under which property is disposed of absolutely whether by instrument inter vivos [distributing property while the person is alive] or by will.” When a will gives property to the trustee of an inter vivos trust to be used for the benefit of the persons provided for in the trust, the result is a “pour-over trust” because the property that the will gives is thought to “pour over” into an inter vivos trust and is disposed of as stated in the trust.
Another advantage of creating a trust is that if something goes wrong in interpretation later, courts can consider it a failure of the trust and may impose a resulting trust that is more in line with the deceased person’s expressed intent. For example, in a 2013 case in which the person who created a trust opened a bank account and mistakenly named his lawyer as the pay-on-death beneficiary, thinking that the funds would go into his trust, the court interpreted that the person meant for the amount to benefit his family and not create a windfall for his attorney, considering it as though the beneficial interest never left the person. Such interpretation is not possible in the absence of a trust. In fact, the court used the person’s intent as expressed in creating the trust shortly before opening the bank account, to derive the person’s wishes and rule accordingly.
Many considerations go into developing a trust, and it is important to write it in such a way as to clarify the intent and avoid misinterpretation. Attorneys at McLaughlin & Nardi, LLC, are experienced at drafting and litigating various kinds of trusts. For more information, contact our office at 973-890-0004, e-mail us, or visit our website.