A trust is a legal arrangement where one person, usually called the grantor, transferor, or settlor who gives legal ownership of specific property to a second person (called a “trustee”) to use to benefit a third person (the “beneficiary”). Trusts are used for many reasons, but people often use them like wills to pass property to their beneficiaries. In some situations, trusts transfer property faster and cheaper than a will.
The law of trusts goes back hundreds of years and was mostly developed through judge made, or “common law.” In addition, Maryland also has the Maryland Discretionary Trust Act and Maryland Uniform Charitable Trusts Administration Act that give specific requirements and forms for trusts created under those laws. However, the Maryland laws do not limit other means of declaring trusts. Read the Law: MD Code Estates & Trusts § 14-404
Trusts are very flexible. Trusts can be for a charitable or private purpose. Trusts can be revocable or irrevocable. Trusts can be created in the lifetime of the grantor (a “living” or “inter vivos” trust) or at the death of the grantor (a “testamentary” trust).
Trusts can be used for any legal purpose. Examples of these purposes are the management of assets on behalf of family members or children in case their parents are disabled or die, protection against creditors, eliminating the need for probate, minimizing estate and other property transfer taxes, and control over insurance policies as well as control over businesses. Trusts are very popular in estate planning because property that is transferred by trust does not go through probate like a will. So, the fees related to probate are avoided. Trusts can also be used to lower the estate tax due for married couples with larger estates. Trusts are also often set up to provide for the health of an individual. Trusts can even be set up to care for a beloved animal after the death of the owner. Read the Law: MD Code Estates & Trusts § 14.5-407
In order to create a trust, the grantor writes a document called a Declaration of Trust. Technically, trusts do not need to be in writing, but execution of a trust is almost impossible unless it is in writing. Read the Law: MD Code Estates & Trusts § 14.5-406
In the declaration, the grantor transfers legal ownership of the property to be placed in trust to the trustee and names the beneficiary. The grantor must be legally competent to make the trust. Read the Law: MD Code Estates & Trusts § 14.5-401 and 14.5-402
The trust does not exist until a trustee accepts receipt of the property. A trustee may be a person, institution, or other organization. The declaration can include a list of who the grantor wants to be the next trustee if one cannot continue. The trust can be set up with the grantor as the first trustee. Trusts created under the Maryland Discretionary Trust Act assume that the grantor (called the “declarant”) will serve as the trustee. Read the Law: MD Code Estates & Trusts § 14-401
Trustees are empowered to manage and invest the property held in trust for the benefit for the beneficiaries. Trustees have a fiduciary duty to the beneficiary, which means they must use reasonable care in managing the property for the beneficiary. Read the Law: MD Code Estates & Trusts § 14-405
The property to be held in trust must be specifically described in the declaration of trust. Though no specific words or actions are required to transfer property into trust, grantors still have to follow the laws for transferring property, like real estate, that have their own rules for transfer.Read the Law: MD Code Estates & Trusts § 14-404
Trusts created under The Maryland Discretionary Trust Act have to say that the property is to be held in trust under the act. Trusts under the Maryland Discretionary Trust Act with no designation will be assumed to be revocable. Read the Law: MD Code Estates & Trusts § 14-402
The Maryland Discretionary Trust Act includes forms for the creation of a trust under the act. Generally, trusts end as soon as the first of three things happens:
- The beneficiary dies;
- On a date or the happening of an event specified in the trust document; OR
- The trustee determines that by judicial, legislative, or administrative action, trust property or income has been or will be determined to be property or an available resource of the beneficiary.
Read the Law: MD Code Estates & Trusts § 14-406