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Using a Trust for Estate Planning in Oklahoma

This post will explain what a trust is, and the potential benefits of the following types of trusts:

  • Trusts for the benefit of a minor child

  • Special needs trusts

  • Dacey trusts

  • Totten trusts

  • Trusts for yourself, in the event that you become unable to manage your property

  • Charitable trusts

What is a trust?


Trusts have been in existence for centuries, going back to medieval England. A trust is a legal device, where one person holds and controls property for another person’s benefit. The person who creates the trust, is called the settlor. The person who holds and controls the property is the legal owner, or the trustee. The person for whose benefit the property is held, is the equitable owner, or the beneficiary. In relation to third parties, the trustee is considered the owner of the property for most purposes. The trustee may file lawsuits to defend the property.


If the property of the trust does not include land, then the trust does not need to be in writing. However, if the trust includes land, then the trust must be in writing. If a trustee fails to properly manage the trust property, or uses the property for his own benefit, the trustee has committed a breach of trust. The beneficiary may sue the trustee for breach of trust; in some cases, the state may criminally prosecute a trustee who breaches a trust.


The settlor may revoke a trust at any time, unless the instrument creating the trust specifically makes the trust irrevocable. Even if a trust is irrevocable, the settlor may still revoke the trust if all beneficiaries consent to revocation.


For a simple example of a trust: suppose you give your daughter $200 and tell her to go to the store and buy groceries for your wife. You have just created a trust. You are the settlor. Your daughter, who controls the $200 (and will control the groceries before she brings them home) is the trustee. Your wife is the beneficiary.


Types of trusts


There are two types of trusts: living trusts (also called inter vivos trusts) and testamentary trusts. A living trust is a trust that goes into effect when the settlor is still alive. A testamentary trust is a trust that the settlor creates in his will. A testamentary trust does not go into effect until after the settlor dies.


Advantages of having a trust


I’ll explain some of the common provisions of trusts, and how these provisions may be of an advantage to you.


Trusts for the benefit of a minor child


You want to give a gift to a minor child or provide for him, but you know he won’t be able to manage the property himself. You may create a trust, naming a trustee to manage the property, and naming the minor child as the beneficiary. The minor will have adequate provisions, and the trustee will manage all the property.


You may create such a trust to go into effect while you are still alive. Or, you can write a will, and create a testamentary trust, in which you specify that upon your death, your property will go to the trustee, in trust, for the minor person.


This type of trust may also be a good idea, to provide for someone who is not a minor, but who is not responsible or mature enough to manage a large amount of property.


Special needs trusts


A special needs trust is a trust for someone who is incapacitated and will be unable to manage money or property for himself. A special needs trust is often created and administered in a manner similar to a trust for a minor. A special needs trust also offers the same advantages as a trust for a minor: the person with special needs will have adequate provisions, and a competent trustee will manage the property. The film Rain Man provides a famous, fictional example of a special needs trust.


Dacey trusts

A Dacey trust (named after the well-known estate planner Norman Dacey) is a trust where you, the settlor, name yourself as the trustee, and you also name yourself as the beneficiary. You then specify that after you die, another person becomes the trustee, and another person becomes the beneficiary. The advantage of this type of trust, is that the trust property does not have to go through the time-consuming, and often expensive, probate process. Instead, upon your death, the trust property automatically passes to the trustee, in trust for the beneficiary. (You can specify that after your death, the trustee and the beneficiary will also be the same person.)


Totten trusts


A Totten trust is a simple type of trust, in which the settlor deposits money into a bank account in trust for another person. All that the settlor needs to do is inform the bank that the deposit is in trust for another person. When the trustee (or trustees, if there are more than one) die, the bank may then pay the money, and any interest, to the beneficiary. The only way that the settlor may revoke a Totten trust is to deliver a written notice of revocation to the bank, before the trustee(s) die.


The advantage of this type of trust is that it is simple and inexpensive to create and administer, and does not require the expenses involved in probate, or in the administration of more complex trusts. Oklahoma law specifically recognizes Totten trusts (click here and here.)


Trusts for yourself, in the event that you become unable to manage your property


You can create a trust, and name yourself as the beneficiary, and name a person who will act as trustee if you become unable to manage your own property. This type of trust may be especially helpful to older persons, who know that they will soon need assistance with their property management. You can also combine this trust with a Dacey trust, and state that when you become unable to manage your own property, someone else will become the trustee, and that when you die, someone else will become the beneficiary.


Charitable trusts


A charitable trust, is a trust where you name a trustee, and name a charity or charities as the beneficiary. Some of the nation’s largest philanthropic contributions have been made this way (see examples here and here). However, donors have made many smaller charitable contributions through charitable trusts as well.


A final word of warning


Trusts can be a great advantage to some people; however, trusts are not an advantage to all. For some, trusts may be of no benefit at all. For others, trusts may actually be harmful; a trust may cost more, and be more difficult to manage, than other types of estate planning tools. Whether a trust will help you, depends on your specific situation. Neither I, nor anyone else, can tell you whether a trust is a good idea for you, without thoroughly knowing your financial and life circumstances.


Unfortunately, however, there are many unscrupulous promoters, who sell trusts as a “one-size-fits-all” solution that will cure all ills. You should never enter into a trust arrangement without first consulting a qualified attorney or estate planner. Also, make sure that you consult an advisor who will not personally benefit from your decision to create a trust. Do not consult a person who is selling trusts and will make a handsome profit if you buy a trust from him. Because a trust can have very important consequences for yourself and your loved ones, make sure that you enter into any trust arrangement wisely.