TRUST SETTLOR GIVES UP CONTROL
When a settlor creates a trust, he/she passes title of the property or asset to the trust or gives cash money to the trust, wherein the trustee invests the money as a fiduciary or manages the asset or asset in issue for the best interest of the trust beneficiary. It is true that in some circumstances the settlor, or the person who created the trust and most likely provided the seed capital, asset(s) or property for the trust, is or can be the trustee. The settlor is also known as the grantor, trustor or even donor; the terms can be used interchangeably. Often enough also, the settlor may not give up complete control of the money, asset(s) or property that he/she otherwise gives to the trust, for the trustee to manage, by, for example, providing for a life estate of the property in the settlor or his/her spouse.
There are a great many types of trusts that are permitted with a great variety of factual scenarios imaginable. For some special needs trusts, however, the trustee must receive assets, properties or monies from a third source, for the sole use by the beneficiary. Many rules apply for the funding and ongoing management of a special needs trust in order for the trust to maintain its privileged position, being excluded from the assets of the beneficiary for government benefits qualification. This blog has already discussed the various elements of special needs blogs, here, here and here. It is important to note that there are important restrictions on trusts, such as what the distribution of the funds can be used on as well the method and manner of initial funding and ongoing funding of the trust. The question should also be asked, how does a trustee wrap up the affairs of a special needs trust? What if the beneficiary uses up all of the funds? Is legally unable to recieve the funds? For any number of reasons. What if the beneficiary passes away and there are still funds in the trust? What then?
SPECIAL NEEDS TRUST LEGAL PROTECTIONS
A special needs trust requires several things. First and most important for pursposes of wrapping up a trust, the funds must be ceded to the government in the event that there are funds remaining at the time that the beneficiary passes away or is otherwise legally unable to collect from the trust. If the government is paid 100 percent of its expenditure and there is money left over, the trust documents indicate who or what entity receives the money. There are different requirements for the creation of the trust depending on whether or not the seed capital, asset(s) or property is owned by the beneficiary or by a third party.
In either event, however, the heretofore owner of the monies, property or asset(s) that is or will ultimately be given to the trust must be cede total control to the trustee, to be held by the trustee for the beneficiaries best interest. So, while the beneficiary may very well enjoy the fruits of the trust and the fact that the trust “owns” title to something that the beneficiary uses daily without any thought of the legal distinction, the law does recognize this distinction. The beneficiary does not have conrol over the property in the trust. Another alternative can occur insofar as the trust may run out of funds for the benefit of the beneficiary. If this happens, certainly there is a different wrap procedure, that documents the final closing of the account, as well as an accounting indicating various financial events.