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Trust Elements – Trust Property – II

Trust Elements – Trust Property – II

A trust has five main elements. First, a settlor transfers some or all of his or her property. Second, the property transferred by the settlor is designated trust property. Third, the trust property designated by the settlor is transferred with the settlor’s intent that it be managed by another. Fourth, the trust property designated by the settlor is transferred for management by a trustee. Fifth, the trust property designated by the settlor is managed by a trustee for the benefit of a beneficiary. This article discusses some aspects of the element of trust property.

Definite Property

A trust must have definite property and the property must be in existence during the existence of the trust. An expectancy is property that one expects to own but does not yet own, such as an expected inheritance or right of survivorship. An expectancy is not enough to support a trust.

If all the property in a trust is found not to have belonged to the settlor, the trust automatically terminates. If all the property in a trust is destroyed, the trust automatically terminates.

Trust property may be a life insurance policy payable to the trustee. Such a trust is known as a life insurance trust.

Minimum Amount of Trust Property

A trust must have a minimum amount of trust property. If, by its terms, a trust has not yet taken effect, it may have a minimal amount of trust property. If, by its terms, a trust has taken effect, it must have sufficient trust property making the existence of the trust economically justified. If a trust currently has sufficient trust property to make the existence of the trust economically justified, the trust is said to be funded. If a trust does not currently have sufficient trust property to make the existence of the trust economically justified, the trust is said to be unfunded.

In some states, the minimum amount of trust property a trust must have is set by statute (e.g., $10,000). Under such a statute, if a trust does not have the minimum amount of trust property required, the trust may be terminated by a court.

A common error made by people seeking to avoid probate is to leave all of their property in trust, and then forgetting, or not knowing, that they must actually transfer their property to those trusts in order for those trusts to be valid.

Sometimes, when property is left to minor children, creation of a guardianship or trust would be impractical. Most states have statutes allowing an adult to give small amounts of property to a minor child outside a guardianship or trust and simply name an adult as custodian of the property for the minor child.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

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