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Introduction: Creating a Trust with a “Declaration of Trust” Document
Recently, we’ve spent considerable time and energy discussing trusts as part of our general estate planning practice. Trusts are a major source of interest for us, as these legal instruments have the potential to confer substantial value to clients. What we haven’t discussed in detail thus far is how trusts are created in Maryland. Technically, trusts can be created without any written documentation, but of course written documentation is highly recommended. Executing a trust is incredibly difficult without a written document, and so a “verbal” trust is almost never the optimal path.
To properly create a trust, the initiator of the trust – the “trustor” – develops something referred to as a “declaration of trust.” This document identifies the person who will manage the trust and carry out its instructions – the “trustee” – as well as the person or persons who will directly benefit from the trust assets – the beneficiary or beneficiaries.
In the declaration of trust, the trustor identifies the assets which will be placed in the trust. The trustor then legally transfers “ownership” of those assets to the trustee, and the trustee then assumes a fiduciary obligation to fulfill the instructions given by the trustor. The trustor lays out precisely how the assets will be handled (i.e. educational purposes, healthcare purposes, etc.) and distributed to beneficiaries. Some trustors, for instance, will put restrictions on when beneficiaries may receive assets, and how frequently may be disbursed. A trust is never officially created until the trustee accepts the property placed in the trust.
When a trustee accepts the property, and accepts the appointment as the official trustee, that person takes on a fiduciary responsibility with respect to the trust and its assets. This essentially means that the trustee is legally compelled to carry out the specific instructions associated with the trust, and can be held accountable if he or she fails to fulfill his or her duties. In other words, if a trustee doesn’t fulfill the terms of the trust, the trustor can bring a suit against the trustee for restitution.
The Maryland Discretionary Trust Act
The State of Maryland passed something called the “Maryland Discretionary Trust Act” which provides a set of consistent rules regarding grantor trusts. A grantor trust is simply a trust in which the trustor also acts as the trustee. This act also includes forms which assist in the creation of a trust.
The Various Ways of Ending a Trust
How does a trust come to an end? There are actually multiple ways in which a trust may be ended. The first way is that the beneficiary passes away. This makes intuitive sense, because without a beneficiary there is nowhere for the trust assets to go. The next way is the passing of a particulate date, or the occurrence of a specific event; the date or event must be identified in the declaration of trust. The last way is for the trustee to determine that the property held by the trust is currently, or will be in the future, the property or “available resource” of the beneficiary. The trustee can make this determination by various means, including judicial, administrative, or legislative action. In other words, a determination is made that the trust assets are actually the “true property” of the beneficiary, effectively rendering the trust itself useless.
Contact the Murphy Law Firm for More Resources
If readers wish to learn more about creating a trust in Maryland, the operation of trusts, or any other estate planning topic, contact one of the estate planning attorneys at the Murphy Law Firm today by calling 240-219-5243.
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