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Sidebar: What If I Set Up a Trust And Then Move To Another State? Which Law Applies?

State law governs trusts. If the trust involves real estate, the law of the state where the property is located applies. If it's personal property, like a car or money, or most other things, the law of the state where the grantor created the trust will probably control. If you have residences in more than one state, you can provide in your trust which of those states' laws will control the disposition of your real property.

Copyright 1999, 2000, 2002 American Bar Association

If you set up the trust by your will to take effect at your death--a testamentary trust--you retain the title to the property during your lifetime, and on your death it passes to the trustee to be distributed to your beneficiaries as you designate.

We speak of putting assets "in" a trust, but they don't actually change location. Think of a trust instead as an imaginary container. It's not a geographical place that protects your car, but a form of ownership that holds it for your benefit. On your car title, the owner blank would simply read "the Richard Petty trust." It's common to put whole bank and brokerage accounts, as well as homes and other real estate, into a trust.

After your trust comes into being, your assets will probably still be in the same place they were before you set it up--the car in the garage, the money in the bank, the land where it always was--but it will have a different owner: the Richard Petty trust, not Richard Petty.

This may sound abstract, but as this and the next chapter show, the benefits are concrete.

It may be helpful to think of a trust as a contract between the grantor and the trustee. The grantor makes certain property available to the trustee, for certain purposes. The trustee (who often receives a fee) agrees to manage the property in the way specified.

Putting property in trust transfers it from your personal ownership to the trustee who holds the property for you. The trustee has legal title to the trust property. For most purposes, the law looks at these assets as if they were now owned by the trustee. For example, many trusts have separate taxpayer identification numbers. But trustees are not the full owners of the property. Trustees have a legal duty to use the property as provided in the trust agreement and permitted by law. The beneficiaries retain what is known as equitable title, the right to benefit from the property as specified in the trust.
The donor may retain control of the property. If you set up a revocable living trust with yourself as trustee, you retain the rights of ownership you'd have if the assets were still in your name. You can buy anything and add it to the trust, sell anything out of the trust, and give trust property to whomever you wish.

What is Estate Planning?

Estate planning is one of the most important steps any person can take to make sure that their final property and health care wishes are honored, and that loved ones are provided for in their absence. Though often overlooked or put off in favor of more immediate concerns, a comprehensive estate plan can resolve a number of legal questions that arise whenever anyone dies: What is the state of their financial affairs? What real and personal property do they own? Who gets what? Does a personal guardian need to be appointed to care for minor children? How much tax will need to be paid in order to transfer property ownership? What funeral arrangements are appropriate?

What is an "Estate"?

Your "estate" consists of all property owned by you at the time of your death, including:

  • Real estate 
  • Bank accounts 
  • Stocks and other securities, 
  • Life insurance policies, 
  • Personal property such as automobiles, jewelry, and artwork.
    How Can an Estate Plan Help? 
    Regardless of your age, or the size and complexity of your estate, an estate plan can accomplish the following:
  • Identify the family members and other loved ones that you wish to receive your property after your death. 
  • Ensure that your property will be transferred to those you have identified, as quickly and with as few legal hurdles as possible.
  • Minimize the amount of taxes that will need to be paid in order for your property to pass to others after your death.
  • Avoid the time and costs associated with the probate process by utilizing estate planning devices like living trusts and "payable on death" bank accounts.
  • Dictate the kinds of life-prolonging medical care you wish to receive should you be unable to make your wishes known when the time comes.
  • Set forth the kind of funeral arrangements you would like, and how related expenses are to be paid.

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What Is a Trust?

A trust is a legal relationship in which one person (or qualified trust company) (trustee) holds property for the benefit of another (beneficiary). The property can be any kind of real or personal property--money, real estate, stocks, bonds, collections, business interests, personal possessions and automobiles. It is often established by one person for the benefit himself or of another. In those cases, it generally involves at least three people: the grantor (the person who creates the trust, also known as the settlor or donor), the trustee (who holds and manages the property for the benefit of the grantor and others), and one or more beneficiaries (who are entitled to the benefits).

What Is Estate Planning?