Trusts and estates
Encyclopedia
The law of trusts and estates is generally considered the body of law
which governs the management of personal affairs and the disposition
of property
of an individual in anticipation of the event of such person's incapacity or death
, also known as the law of successions in civil law
. Its techniques are also used to fulfil the wishes of philanthropic bequests or gifts through the creation, maintenance and supervision of charitable trust
s.
In some jurisdictions, such as the United States, it can overlap with the area that has come to be known as elder law that deals not only with estate planning but other issues that face the elderly, such as home care, long term care insurance or social security or disability benefits. There may also be overlap with areas of the law touching on End-of-life
issues, not solely for the elderly, but also persons with terminal conditions.
, an estate
consisted of the tangible
asset
s of real
and personal property
which belong to a natural person. The property of the estate must either be bequeathed through a will or transferred through the laws of intestacy
if there is no will. A will
is the most commonly used legal instrument for the distribution of the property of a deceased person. Before property can be disposed of pursuant to the terms of a will, the will must be submitted to a probate
court
having jurisdiction
of the estate of the deceased. Probate is often considered a relatively lengthy and expensive process, albeit one which may provide greater safeguards with regard to the rights of a deceased person's beneficiaries, though probate often is contested by creditors or disgruntled members of the family of the deceased who feel they have not received their fair share of the deceased's property.
, annuities, US Tax Code
section 401(k)
Retirement Plans or Individual Retirement Account
s (also known as Registered Retirement Savings Plan
s in Canada
) will also avoid probate as these devices allow property to transfer to beneficiaries outside the probate process.
Special needs trust
s are created to ensure that beneficiaries who are developmentally disabled or mentally ill can receive inheritances without losing access to essential government benefits.
Trusts may also allow people a certain limited amount of control of how the amount held by the trust is handled. For example, one could leave money for somebody who may not be mature enough to handle money, and state that the money can only be used for health, education, support and maintenance of that person until the age of 35, upon which time the remaining income and principal will be distributed. One can also distribute one's assets to charitable purposes by creating an irrevocable charitable trust that may distribute the principal or the income of the trust much in the same manner as a private foundation
.
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
which governs the management of personal affairs and the disposition
Disposition
A disposition is a habit, a preparation, a state of readiness, or a tendency to act in a specified way.The terms dispositional belief and occurrent belief refer, in the former case, to a belief that is held in the mind but not currently being considered, and in the latter case, to a belief that is...
of property
Property
Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...
of an individual in anticipation of the event of such person's incapacity or death
Death
Death is the permanent termination of the biological functions that sustain a living organism. Phenomena which commonly bring about death include old age, predation, malnutrition, disease, and accidents or trauma resulting in terminal injury....
, also known as the law of successions in civil law
Civil law (legal system)
Civil law is a legal system inspired by Roman law and whose primary feature is that laws are codified into collections, as compared to common law systems that gives great precedential weight to common law on the principle that it is unfair to treat similar facts differently on different...
. Its techniques are also used to fulfil the wishes of philanthropic bequests or gifts through the creation, maintenance and supervision of charitable trust
Charitable trust
A charitable trust is an irrevocable trust established for charitable purposes, and is a more specific term than "charitable organization".-United States:...
s.
In some jurisdictions, such as the United States, it can overlap with the area that has come to be known as elder law that deals not only with estate planning but other issues that face the elderly, such as home care, long term care insurance or social security or disability benefits. There may also be overlap with areas of the law touching on End-of-life
End-of-life
End-of-life is a term used with respect to a product supplied to customers, indicating that the product is in the end of its useful lifetime and a vendor will no longer be marketing, selling, or sustaining a particular product and may also be limiting or ending support for the product...
issues, not solely for the elderly, but also persons with terminal conditions.
Estates
In common lawCommon law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
, an estate
Estate (law)
An estate is the net worth of a person at any point in time. It is the sum of a person's assets - legal rights, interests and entitlements to property of any kind - less all liabilities at that time. The issue is of special legal significance on a question of bankruptcy and death of the person...
consisted of the tangible
Tangibility
Tangibility is the attribute of being easily detectable with the senses.In criminal law, one of the elements of an offense of larceny is that the stolen property must be tangible....
asset
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
s of real
Real property
In English Common Law, real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth...
and personal property
Personal property
Personal property, roughly speaking, is private property that is moveable, as opposed to real property or real estate. In the common law systems personal property may also be called chattels or personalty. In the civil law systems personal property is often called movable property or movables - any...
which belong to a natural person. The property of the estate must either be bequeathed through a will or transferred through the laws of intestacy
Intestacy
Intestacy is the condition of the estate of a person who dies owning property greater than the sum of their enforceable debts and funeral expenses without having made a valid will or other binding declaration; alternatively where such a will or declaration has been made, but only applies to part of...
if there is no will. A will
Will (law)
A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his/her estate and provides for the transfer of his/her property at death...
is the most commonly used legal instrument for the distribution of the property of a deceased person. Before property can be disposed of pursuant to the terms of a will, the will must be submitted to a probate
Probate
Probate is the legal process of administering the estate of a deceased person by resolving all claims and distributing the deceased person's property under the valid will. A probate court decides the validity of a testator's will...
court
Court
A court is a form of tribunal, often a governmental institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the rule of law...
having jurisdiction
Jurisdiction
Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...
of the estate of the deceased. Probate is often considered a relatively lengthy and expensive process, albeit one which may provide greater safeguards with regard to the rights of a deceased person's beneficiaries, though probate often is contested by creditors or disgruntled members of the family of the deceased who feel they have not received their fair share of the deceased's property.
Uses of trusts
In order to expedite the process of transferring assets to intended beneficiaries, some people choose to arrange their property so that it can bypass the probate process upon their deaths. For example, placing property into a trust before death (as opposed to a testamentary trust) will often allow the accomplishment of the objectives of property distribution without coming under the jurisdiction of a court and the possible redistribution after a lengthy contested probate process and trial. Similarly, jointly held property (in common law systems), life insuranceLife insurance
Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger...
, annuities, US Tax Code
Internal Revenue Code
The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...
section 401(k)
401(k)
A 401 is a type of retirement savings account in the United States, which takes its name from subsection of the Internal Revenue Code . A contributor can begin to withdraw funds after reaching the age of 59 1/2 years...
Retirement Plans or Individual Retirement Account
Individual Retirement Account
An individual retirement arrangement is the blanket term for a form of retirement plan that provides tax advantages for retirement savings in the United States...
s (also known as Registered Retirement Savings Plan
Registered Retirement Savings Plan
A Registered Retirement Savings Plan or RRSP is a type of Canadian account for holding savings and investment assets. Introduced in 1957, the RRSP's purpose is to promote savings for retirement by employees. It must comply with a variety of restrictions stipulated in the Canadian Income Tax Act...
s in Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
) will also avoid probate as these devices allow property to transfer to beneficiaries outside the probate process.
Special needs trust
Special needs trust
A special needs trust is created to ensure that beneficiaries who are disabled or mentally ill can enjoy the use of property which is intended to be held for their benefit. In addition to personal planning reasons for such a trust there may be fiscal advantages to the use of a trust...
s are created to ensure that beneficiaries who are developmentally disabled or mentally ill can receive inheritances without losing access to essential government benefits.
Use of estates and trusts
Another major factor in trusts and estates law may be to minimize one's tax exposure. After an applicable exempt amount, the United States federal estate tax very quickly approaches 50% of one's taxable estate. The proper use of trusts may reduce one's tax burden. The applicable exempt amount is currently two million dollars in 2006. The exempt amount is scheduled to increase to three and a half million in 2009, after which the estate tax is temporarily repealed for one year in 2010. The year after, the estate tax is scheduled to be reinstated, with the previous exemption of one million dollars.Trusts may also allow people a certain limited amount of control of how the amount held by the trust is handled. For example, one could leave money for somebody who may not be mature enough to handle money, and state that the money can only be used for health, education, support and maintenance of that person until the age of 35, upon which time the remaining income and principal will be distributed. One can also distribute one's assets to charitable purposes by creating an irrevocable charitable trust that may distribute the principal or the income of the trust much in the same manner as a private foundation
Foundation (charity)
A foundation is a legal categorization of nonprofit organizations that will typically either donate funds and support to other organizations, or provide the source of funding for its own charitable purposes....
.