What is a trust, exactly?

“Do I need a trust?” It’s about the most common question I get. Trusts are one of the most complicated, confusing, and misunderstood pieces of estate planning. In this and following articles, I’m going to break them down and make trusts simple. First up: taking a step back to talk about what a trust is.

A simple trust

Most people think a trust is essentially a bank account. It holds property; you can put property in and take it out. That’s true in some ways, but a trust is much more than a box that holds property. Legally speaking, a trust is a set of relationships between property and people.

To illustrate, imagine:

  • You’ve taken your family to the county fair.
  • Your 8-year-old son is about to go play some games, supervised by your teenage daughter.
  • You’ve budgeted $20 for each child to spend during the outing.

You probably wouldn’t hand your 8-year-old $20 and trust he’ll spend it well. You’d probably hand it to your daughter with instructions to make sure it isn’t spent all in one place or too quickly, and to make sure there’s enough left over to buy lunch. You would say you’ve trusted your daughter with that money. You might tell her, quite naturally, “I’m trusting you with this.” It’s only for her little brother, but she is in control of how and when it is spent. She holds that $20 in trust for her brother.

That’s a simple trust. The trust is not just the $20—it’s also the special relationship between that $20, your daughter, and your son.

There’s a legal term for each person involved. You are the grantor, because the money was originally yours and you are the one entrusting it to someone else and giving them instructions. Your teenage daughter is the trustee, because she’s the one who possesses the money and must follow your instructions about how and when and for whom it is spent. Your young son is the beneficiary, because this whole arrangement is for his benefit.

diagram of a simple trust
A simple trust.

You have more power over your property than you think

It helps to understand that when you create a trust, you are exercising your legal rights as owner of your property in a different way than normal.

Most of the time, we think that owning property means one thing: it’s mine and I can do what I want with it. You can go a little deeper, though, and think about all the things you can do with it. For example, let’s say you are the proud and fortunate owner of an apple. You own it, sure, but what does that mean? What can you do with that ownership? Well, you can:

  • Control where the apple is, physically (in your hands, for example, or in your cupboard)
  • Eat the apple
  • Feed the apple to your child
  • Plant the apple seeds
  • Throw the apple in the garbage
  • Give the apple to someone else

Think of each of these things as a different legal right you have as owner. The thing is, owning the apple is not an all-or-nothing game. You can divvy up these rights and uses and give them to different people. You can just hand the entire apple to someone else, sure. But you could also cut it in half and keep some for yourself. You could take the seeds out first and give them to a different person. You could hand the apple to your friend to keep safe for you while you go take a swim.

Think of ownership as a bunch of separate rights over the property. These rights, such as the right to possess and the right to use, can be separated by creating a trust.

In the same way, when you create a trust, you’re dividing the different rights to your property and giving them to different people. You’re giving the right to possess and manage the property to your trustee, and you’re giving the right to use and enjoy the property to your beneficiary.

Of course, it gets a little more complicated than that. When you give these different rights to different people, you also have to create some rules about what each person can and cannot do with the property. Does the trustee get paid for the job? Can your beneficiary use the trust money to buy a luxury car? You might want to answer these questions.

Trusts are about the future

In fact, the great benefit of a trust is it allows you to set the rules and control how your property is going to be used and managed far into the future. Most of us only think about our property in the here and now, making decisions about how to invest it or manage it or spend it as they come. In fact, we all have the creative power to set legally enforceable rules and relationships between our property and the people we love.

Why would you want to do that? I’ll answer that question in future articles. In short, though, you create a trust because you want to set your own rules for who is going to control your property and how it is going to be used in the future. You want to do that because it will protect or help your family. Because, as with our example of the county fair, sometimes handing over a wad of cash is not the best way to do it.

 

How virtual meetings make estate planning simple

Traditional estate planning is not simple, and a big reason for that is meetings.

Traditional meetings are on the lawyer’s terms

Traditional estate planning involves three to four meetings (usually), over the course of six to eight weeks. All of these meetings are:

  • In person,
  • At the lawyer’s office, and
  • During business hours.

Some people make it work. If you’re retired, for example, you probably have more freedom during regular business hours. If you’re not retired, though, it’s hard to take that much time off work—especially if your spouse has to take off as well, or has to find someone to watch the kids. That’s a big reason why only 20% of millennials and 36% of Generation X have wills.

Even if you can attend these meetings, going to a law firm is no one’s idea of fun (even if you like your lawyer). Law firms tend to be intimidating and uncomfortable. You often have to deal with a receptionist and wait. A good law firm will make this a pleasant experience. Many firms, though, haven’t put much thought into customer service, even if they are full of good lawyers.

I once hired my own lawyer for a small matter. When I showed up for the initial meeting, I checked in with a dour receptionist. She told me, in no uncertain terms, that I could not meet with my lawyer until I had completely filled out a long questionnaire with lots of (I knew) pointless questions. That was my first experience walking into the law firm as a client. Even though my lawyer ultimately did a fine job, do you think I’ve ever recommended the firm to anyone else? This kind of experience is, sadly, still common in the legal world. It’s expected that clients will meet with the lawyer on the lawyer’s terms.

That’s also why traditional estate planning meetings often have to be scheduled weeks in advance. They have to fit into the lawyer’s schedule, and lawyers are busy. Although estate planning isn’t usually an urgent matter, it’s frustrating as the client to finally decide to get it done and then find out it’ll take several weeks and multiple meetings.

Of course, for a long time in-person meetings were the only option. You want to see your lawyer so you can get a good impression and decide if he or she is trustworthy; phone calls and emails won’t suffice. But now video technology and the internet have given us another option: virtual meetings.

Virtual meetings are on your terms

Virtual meetings solve the problems with traditional, in-person meetings. Their key virtue is flexibility, which is a virtue indeed in today’s busy world.

Because virtual meetings can be done from anywhere and at any time, they can work around your schedule. You can have a virtual meeting in the early morning, on a lunch hour, or in the evening after the kids go to bed. You can have a virtual meeting at work, or at home, or while visiting relatives. You won’t have to take time off work. You won’t have to find childcare. You won’t even have to put on shoes.

Virtual meetings are easy to attend—you only need a computer or smartphone and an internet connection. They avoid the expense and annoyance of traveling to a professional office. Best of all, you don’t have to wait in a waiting room or deal with a receptionist.

And think about this: you don’t have to live near the lawyer to have a virtual meeting. That means you have more options when it comes to choosing an attorney. I, for instance, can serve anyone in the entire state of Wisconsin.

All this flexibility and convenience saves the lawyer time and expense as well. It’s a win–win. That’s why virtual estate planning often costs less than traditional estate planning.

Lawyers are still catching on to virtual meetings, which is a shame. For estate planning, I think they are a no-brainer. They make it easier, cheaper, and, well, simpler. That’s why I offer virtual meetings, and hope they will become the primary way I meet with clients in the future.