Estate planning lawyers get used to the vocabulary that they use every day. It becomes second nature. We throw around words like “grantor”, “trustee” and “beneficiary” assuming that whoever we happen to be talking to knows what we mean.
But many times folks don’t understand the terminology.
I was reminded of this not too long ago during a recent doctor appointment when my doctor reviewed blood work results with me. Doc said something about my cholesterol counts – using medical acronyms such as HDL and LDL. He even threw in the word “statin” for good measure. Mirroring his expression, I nodded my head with a serious a look on my face as if I understood what he was saying.
When I arrived home that evening for dinner Patti asked me if my checkup went okay.
“Honestly, I don’t know!” I replied, shaking my head.
So it occurred to me that when I use legal terms not everyone will understand. So when I say the word “trust” what does that really mean?
A trust is really nothing more than a contract between the “grantor” – the person who dictates the trust terms – and the “trustee” – the person who has the responsibility to carry out the trust terms.
This “trust” – or “contract” tells the trustee how he or she is supposed to hold the assets or property that the trust owns, how the assets are to be invested and sold, to whom the trustee should make distributions and when. In most revocable living trusts, the “grantor” is also the initial “trustee” meaning that the person who dictates the trust also controls its investments and distributions.
When the original grantor gets sick or dies and can no longer serve as trustee, then someone else serves as trustee.
The analogy that I like to use is to imagine a trust as a bus route. A city planner designs a bus route by mapping where it will go and where it stops. He draws lines on a map that route the bus north on Main Street, east on First Avenue for three blocks then south on Lincoln Boulevard.
The city planner is the same as the grantor of the trust. Just as the city planner maps the bus route the grantor maps the trust’s route. The grantor of the trust directs the attorney to write the words that results in what the trust says and does.
The bus driver is the trustee. Like the bus driver, the trustee should not deviate from the planned route. Just as the bus driver is charged with the responsibility of driving the bus safely, the trustee navigates current conditions to ensure that the grantor’s intentions are carried out for the benefit of the beneficiaries.
Just as there are different shifts of bus drivers who drive the same route – the morning shift, afternoon shift, and night shift – there could be different trustees. The first trustee might be the grantor herself, but when she gets sick the next trustee steps in.
So who are the beneficiaries? These are the people who receive the bounty from the trust. In my bus analogy, these are the passengers. They benefit from the creation of the bus route and bus driver’s work to get to where they wish to go. The bus driver, you will note, is not a beneficiary. He has a job that he has to do.
So when you create a trust and name your brother Jim as the trustee but your daughter Suzie as the beneficiary – Jim doesn’t get the bounty from the trust. He has a job to do. Jim must make sure that the trust assets are held and invested wisely for the benefit of Suzie. Jim is the bus driver who gets the bus to where it is supposed to go.
Sometimes the trustee is also a beneficiary. Here that person is said to be wearing two “hats”. They have the responsibility to carry out the trust functions, but they also benefit from the trust. Where there are multiple beneficiaries and if the trustee is also one of the beneficiaries, then that person has to be careful to carry out his duties for the benefit not just of himself but for all beneficiaries.
This is like the bus driver who makes sure that all of his passengers exit the bus first in the event of an emergency. He doesn’t run off the bus first and hope that all his passengers know to escape the danger.
As for my doctor, it turns out that I had nothing to worry about. Patti was a dietitian in a former life before we had children. She spoke to my doctor and was able to translate the terminology for me into language I understand.
But she did warn me to lay off the junk food. Rats!
©2012 Craig R. Hersch