A Simple Trust

A trust is simple.  A trust can have many pages, or a half a paragraph.  You write it, you get to make the rules.  Good thing.  And bad, too.  Sometimes it is like Captain Picard on Star Trek saying, “Make it so.”  But sometimes it is like explaining to a precocious 6 year old how the moon sometimes orbits the sun faster than the earth does and sometimes slower.

So why make a trust complicated and long?  Why make any deal complicated and long?  How about the deal we make every time we log onto a website and download something?  Even when it is free?  Yeah.  Long and complicated.  And a trust agreement probably should be too.

But why?  What law says it has to be long?

Well, you see, there is no law.  The law is that a trust agreement is exactly what you say it is. There are no rules that fill in the blanks we do not cover in the writing.

Most contracts are different.  There are millions of rules for contracts.  We all make contracts almost every day, and many times a day.  As a matter of fact you can make a binding contract without saying a word.  Two people, standing silently and perhaps even with no eye contact, can make a deal.   One party silently makes an offer to pay $.45 for a can of beans, by placing a can of beans on a table or counter.  The other silently agrees to accept the offer and to deliver the can of beans to the buyer by sliding the can of beans past a scanner.  The buyer then hands over the funds in satisfaction of the buyer’s agreed obligations and the seller fulfills the contract for delivery of goods to the buyer by placing the can of beans in the paper sack, or perhaps by placing the can onto the second part of the grocery store checkout counter.  Thousands of such deals are made every day, all across our nation.

Such a contract is binding and legally enforceable.  The buyer who takes the can of beans but fails to pay can be sued in court and can also be prosecuted for theft.  The seller who fails to hand over the can of beans after the buyer has paid the agreed purchase price can also be sued for breach of contract and can be charged with theft.

But how can that be?  The answer is that there are a multitude of statutes, enacted by our legislature, that fill in all the blanks in the contract agreement.  The Uniform Commercial Code verbalizes many of the rules.  Court decisions in various circumstances help guide us in the rest of the blanks.  The UCC tells us that if a buyer offers a particular price for a tangible moveable thing, and if the seller agrees by a clear indication that he or she accepts the offer, and if the buyer hands over the money or promises to hand over the money, then the parties have made an enforceable contract.  For things that are not moveable, like land, other rules step in.  They are generally found in court decisions, but some of the rules are written in statutes, especially if they relate to real estate.

But there are very few such rules to fill in the blanks for trust agreements.  A trust agreement is like a “three-legged stool.”  One person, usually someone who owns something, (who we will call the Grantor) hands that thing over to a second party (who we will call the Trustee) but does not really give away the thing to the trustee.  Instead the Grantor tells the Trustee to do something with the thing for the benefit of some third party (who we will call the Beneficiary).  The instruction the Grantor gives the Trustee is the trust agreement.  The agreement could simply tell the trustee to keep a can of beans from freezing and to give the can of beans to the Beneficiary at supper time, or in two weeks, or two years.

But sometimes the can of beans is really a million dollars or a house or half of the Grantor’s Estate when the Grantor dies.  Perhaps the deal is that the trustee will be allowed to spend the money on college education for the beneficiary but only if there is enough cash left to pay the real estate tax on the house and only if the beneficiary is getting A’s and B’s in college and only if the beneficiary is at least 17 years old, etc.  So you can see how the deal for a pile of beans can get more complicated.  But there just is no standard rule to fill in the blanks about A’s versus B’s and no magic rule about age 17 versus age 16.  So the trustee needs more instructions.

So you can see that a trust agreement has to be long enough to make the plan clear.  A good lawyer works hard to make the instructions in the trust agreement easy to understand and to deal with all the questions that may not be obvious now but which may become critically important in the future.  Some rules, such as tax rules and real estate rules and surviving spousal protection rules, must necessarily affect the instructions in the trust agreement.  So the lawyer must at least be aware of the choices the grantor has and perhaps should decide now.  Alternatively, the trust agreement should give the trustee power to decide the question when the question arises.

Of course, there are some trust agreements that just cannot be enforced.  For instance, if the grantor tells the trustee to use the money to hire a hitman to kill the grantor’s evil son-in-law, no court can force the trustee to perform that trust agreement.  We just cannot legally make deals to kill people.  Perhaps a more legal but equally unenforceable trust would instruct the trustee to give all of the Grantor’s money to Grantor’s grandchildren but there are never born any grandchildren.  So the lawyer must assist the Grantor in deciding what should be said and what to add to the instructions in case the plan does not work out as planned.

Finally, the trust agreement must give the trustee power to control at least some property, some asset, perhaps at least one dollar.  If the trustee has nothing to control for the grantor, then there is nothing the trustee can do, so there is no trust deal.

One of the purposes of many trusts is to help avoid the need to use a probate process to transfer the grantor’s assets to the grantor’s heirs at grantor’s death.  In that case, it is important to make sure that the grantor gives the trustee ownership rights in all of grantor’s assets, including real estate, moveable tangible personal property like a car or a couch and all of grantor’s intangible property like bank accounts.  Occasionally, a significant asset is overlooked, or the grantor acquires a significant asset but fails to transfer it to the trustee before death.  In that case the grantor’s estate might have to be probated.  So the Grantor’s will must state what should happen to such an asset.  Often, the grantor’s will merely directs that the asset be transferred to the trustee and be included in the assets controlled by the trust.  We call that kind of a will a “pour-over will.”  So. Sometimes we need documents in addition to the trust to accomplish the desires of the grantor.

So, trusts are simple.  All you need to do is to say what you want.

Witte Law Office