A declaration of trust is the document that establishes a legal trust. It also defines the major elements of the entity, such as the beneficiaries and trustees. Once a trust has been established, a declaration of trust can also be used in some circumstances to redefine the elements of the trust. Like all property law, the details regarding declarations of trust are highly state specific. However most (if not all) states share the following broad outline. Use SmartAsset’s free tool to quickly find a financial advisor in your area who will help you with estate planning.
What Is a Trust?
A trust is a legal structure that holds assets for the benefit of some third party. For example, parents might create a trust fund for their child’s college education. The parents would contribute money into the fund, but it would exist for the benefit of the child. Or a dynastic family might establish a long-running trust to manage the family’s wealth. A law firm or financial firm would oversee these funds, but the family’s various heirs and descendants would be entitled to the money.
Depending on their nature, trusts can hold virtually any form of asset. Most trusts will hold cash and securities, managing wealth on behalf of third parties. However others can hold real estate, art, endowments, and valuable property of other types.
While there are many types of trusts for estate planning purposes, they all share the same basic elements:
- Beneficiary/Beneficiaries – This is the person or persons entitled to the trust’s assets. The trust is managed on their behalf and they receive the assets in the trust based on its terms and structure. Except for charitable trusts, which exist to make charitable donations, most trusts must have a beneficiary or be dissolved.
- Trustee/Trustees – This is the person or persons managing the trust. They do not have any right to the assets within, but instead have a fiduciary duty to manage those assets on behalf of the beneficiaries. A trustee can be an individual or a corporate entity (like a law firm or bank), and most significant trusts will have a board made up of several trustees.
- Terms – These are the rules by which the trust is governed. The terms of a trust establish how and when the beneficiaries will receive assets held in the trust, along with any other rules about how the assets will be governed, trustees selected and the entity managed.
What Is a Declaration of Trust?
A declaration of trust legally establishes a new trust. In doing so, it specifically defines the trust’s beneficiaries, the trustees and the terms of the new trust. The trustees then manage the trust according to the terms laid out in the declaration, on behalf of the beneficiaries defined in the declaration. If the trust has specific or unusual circumstances, the declaration of trust also defines those. For example, a charitable trust may not have specific beneficiaries. Instead it is managed on behalf of a charitable mission. The declaration of trust would define the new entity as a charitable trust, and it would define the trust’s charitable mission.
Most, if not all, states require that a declaration of trust be a written document. Although, as with all property law matters, readers should understand that each individual jurisdiction will have its own rules.
The declaration of trust is generally written by the individual or individuals who first establish the trust. These are the people who make the original contributions which establish the trust (known as the grantor).
The declaration of trust must be officially executed based on the laws of the specific state in which the trust is formed.
A declaration of trust can also be used to modify the terms of an existing trust. For example, an existing trust can issue a new declaration of trust to change a trustee or a rule laid out in the terms. When and how a trust can modify its own terms is based entirely on the state laws which govern that specific trust, as well as the specific circumstances of the new declaration. For example, a trust might relatively easily name a new trustee while it is rare (if at all) that a trust can change its own beneficiaries.
The Bottom Line
A declaration of trust is a legal document which establishes a new trust. It names the trust’s beneficiaries, its trustees and establishes any terms of the new entity. It can also be issued by an existing trust to modify the terms of governance of the entity over time. Keep in mind that a declaration of trust is not a certificate of trust, which is a brief summary of a trust that is being used for estate planning.
Estate Planning Tips
- There are many different kinds of trusts. Whether you want to set aside money for a family member, prepare for your retirement over even protect an asset after you’re gone, there’s probably a trust that can help you do it.
- Is a trust right for you? That’s something a financial advisor can offer immense help with. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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