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In this educational article, we will look at a type of agreement called the Life Trust, also known as a revocable trust. This is a document where its founder acts as a trustee, granting the trustee the right to keep a certain part of his assets for life.

Who is a trustee?

The trustee may be the founder of the Trust, a bank or some other third party, which, in the opinion of the principal, will be able to faithfully manage the assets of the Trust.

In most cases, when establishing a Life Trust, it is precisely its founder that acts as the initial trustee for the assets of the Trust until that person becomes incapacitated, dies or simply prefers that the trust be driven by another person. The new entity, or successor of the trustee, will take over the management of the Trust and distribute the assets. The founder may amend or cancel the Trust at any time by written notice to the trustee.

During the life of the founder, interested parties will receive payments from the income of the Trust for predetermined periods of time. After the death of the founder, the Trust will act like a will, determining which assets belong to whom. Please note that the trustee is responsible for administering the Life Trust and distributing funds as described in the Trust Agreement itself.

Almost like a will

Despite the fact that the trust is similar to a will, there are several aspects because of which many people prefer to draw up a Life Trust, namely:

  • Confidentiality. If we compare the Life Trust agreement with a will, then in the first case the level of confidentiality is higher, since wills can be the subject of legal proceedings, where the court determines the validity of the will, considers potential problems and independently distributes the assets among the beneficiaries. As a result, the content of this document will become publicly available for the search of court records. The opposite situation is with the Life Trust, which is usually managed by the trustee without judicial intervention and therefore will not be in the public domain.
  • Low cost. As a rule, establishing a Lifetime Trust and its maintenance is much cheaper than a will because for the reason that, as we mentioned above, wills can be the subject of legal proceedings. And it, in turn, can stretch for three years and entail large legal costs, attorney fees.
  • Property management. Registration of a Life Trust provides an opportunity for the founder to choose a person who is suitable in his opinion for managing his assets and property at a time when the founder himself does not intend or is no longer able to do this. Thus, it can be said that the establishment of a Life Trust is a good alternative to guardianship or trusteeship.

How to use a Trust Deed?

The purpose of drawing up the Trust Deed is to explain how and by whom the property of the principal should be managed, and how it should be distributed in the event of his death. To achieve this goal, the following provisions must be included in the Trust Deed.

  • The principal's family

 This provision is about the information about the trustee's family, his / her spouse and children, both legitimate and adopted by the founder of the Trust. Thus, the contract should disclose information about all the principal's children, even if he does not plan to leave them anything in the Trust. Thus, the judge can be sure that the Trust founder did not indicate one child as a beneficiary intentionally, and not just because he forgot about him.

  • Appointment of Trustee

Within the framework of the Trust Deed, it is necessary to indicate information on the trustee acting in the interests of the principal. The trustee is responsible for managing trust assets, paying the proceeds of the Trust to the ultimate beneficiaries, and also for distributing all assets among the beneficiaries after the death of the founder of the Trust. The main requirements of the trustee are that he must be an adult with no criminal record for a criminal offense. 

  •  Description of Trust Assets

 If you plan to establish a Life Trust, you must accurately and completely describe the assets that will be transferred to trust. The description should include details such as real estate addresses, visual descriptions of private property, and the value of any and all assets included in the Trust. Also, for the transfer of all assets, it is necessary to do some work, for example, preparing a bill of exchange for transferring any tangible personal property, a letter of trust to the bank for transferring the contents of the bank account, brokerage forms for transferring shares and bonds and a document on changing the beneficiary for transferring a life insurance policy.

  •  Beneficiary Information

 One of the most important parts of the Trust Deed is information on ultimate beneficiaries. In terms of beneficiaries, these are individuals who inherit the contents of the Trust after the death of its founder. In addition, the trustee may indicate certain people to whom certain assets will be transferred after his death.

In addition to specific gifts, you must indicate who will inherit the balance of the Trust’s assets. The balance includes everything that has not been distributed as gifts. In addition to the general beneficiaries, alternatives should be indicated that, in the event of failure or death, the former will be able to inherit the assets of the Trust.

After drawing up and thorough verification of the Trust Agreement, the principal must sign and date the document in the presence of three witnesses, who, in turn, are also required to put their signatures. This indicates that the founder of the Trust was sane and had the ability to make such decisions. Finally, do not forget about the page for notarization of the Trust.

If you intend to establish a Life Trust, please note that in some jurisdictions it may lose legal force in cases where one person acts as the founder of the Trust, trustee and beneficiary.

Learn more about the benefits of applying for a Trust from IQ Decision UK practitioners through one of the contacts below.