Schmidt & Sikes, P.C.

Support and protection for those who need it most.
413-203-5313

March 29th, 2014 by Marilyn J. Schmidt, Esq.

Introduction to the Trust

What is a Trust?

A trust is a legal instrument, which holds property for the benefit of beneficiaries and is controlled by the “trustee.” The trustee has a duty to manage the property for the beneficiaries and distributes income from the principal of the trust. The person who funds the trust (also known as the settlor) may choose to make a trust for a variety of reasons, some of which are listed below.

What is the Purpose of a Trust?

There are many potential reasons why an individual would want to use a trust to manage assets.

Protecting Loved Ones’ Financial Needs

One common type of trust is a trust set up by a parent or a grandparent to allow the assets to benefit a child or children until they reach a certain age (this age is commonly 22 or 25). By using a trust,

the child can be provided with income, but it prevents the child from accessing (and potentially wasting) the principal of the trust. The trust may or may not give the trustee discretion regarding how much can be distributed to the child(ren). Or the trust may specify under what circumstances income or principal can be distributed.

Another common type of trust is one set up for the benefit of a person with special needs. There are many federal or state benefits that have certain asset or income limits (such as MassHealth). By creating a Special Needs Trust or Pooled Disability Trust, it is possible to provide a beneficiary with financial support without jeopardizing eligibility for those benefits. However, there are restrictions on what those funds can be used for. Most importantly, the funds cannot be used for food or shelter. However, they can be used for “supplemental” needs, such as clothing, recreational expenses, certain medical expenses, or the cable bill, among other things.

Estate Planning

A trust can also be an important estate-planning tool to potentially minimize or even avoid estate taxes, should your estate be large enough. In Massachusetts, an estate worth one million dollars or more can be subject to estate tax. This amount includes real property, bank accounts and retirement accounts, among other assets. Or you may want to use a trust to provide for your spouse or children after your death.

Who Should Serve as Trustee?

Anyone can serve as trustee, including a family member, friend or an attorney; more than one person can serve as a trustee. A trust may provide for payment for the trustee’s services. The trustee has a fiduciary obligation to the beneficiaries of the trust, and must follow the instructions of the trust when distributing income or principal. Generally, a trust is not subject to court oversight. To protect the best interests of your beneficiaries, it is important to choose someone you trust.