Self-settled spendthrift trusts are very popular under US laws. It is important to look at the basic principle for possible future legislation in the Philippines.
Self-settled trust is a kind of trust where the grantor (i.e. creator, settlor or donor) is one of the beneficiaries, or the sole beneficiary of the trust. Spendthrift trust is a kind of trust where the beneficiary receives income from the trust, but the trustee is prohibited from distributing any of the principal to other parties. As its name implies, a spendthrift trust is a good way to keep an irresponsible son or daughter from squandering his or her inheritance on foolish investments or luxury purchases.
A self-settled spendthrift trust is a kind of trust that is a combination of a self-settled and a spendthrift trust. It is a self-settled trust with a spendthrift provision that the beneficiary (who is also the grantor of the trust) is prohibited from transferring his interest in the trust to other parties (i.e. his creditors).
With a spendthrift trust, the trustee is given discretion to make or not make distributions to beneficiaries. Because distributions are discretionary, beneficiaries are prevented from voluntarily or involuntarily transferring current or future rights in the trust. In other words, beneficiaries cannot give away trust income or principal in advance of receiving it. One effect of such alienation language in a trust is that creditors of a trust beneficiary cannot claim that trust assets are assets of the beneficiary. Therefore, creditors cannot stake a claim against trust assets, but can only collect money that is actually distributed to the beneficiary.
For the self-settled spendthrift trust to work, it is important that trustees must be independent; the grantor cannot be a trustee or co-trustee, and must not perform any of the trustee's duties, such as filing fiduciary tax returns or maintaining trust records. However, the grantor can provide investment advice to the trustee and retain the power to veto trust distributions.
Showing posts with label Trust and Estate. Show all posts
Showing posts with label Trust and Estate. Show all posts
Tuesday, September 28, 2010
Living Trust
As I have been working with clients lately, I experienced that there are a lot of ways of managing properties without fear of paying huge amount of estate taxes and lawyer's fees for probate. The principle that I am going to share is the principle of LIVING TRUST.
By way of introduction, trust is defined as a legal arrangement by which the assets of one person are transferred to another person or institution for the benefit of a third party. In a trust, the person with the assets (known as the settlor) transfers ownership of his property to someone (the trustee) who promises to administer the property for a third party (the beneficiary) according to the settlor's wishes. Under the Civil Code of the Philippines, "A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards the property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary." (Art. 1440)
In a living trust, the settlor transfers ownership of his property to a trustee who manages it throughout the settlor's lifetime. Upon the death of the settlor, the trustee distributes the trust to the beneficiaries in accordance with the settlor's instructions.
In most cases under US jurisdiction, the settlor of a living trust reserves the right to modify or revoke the trust as long as he lives. This type of living trust is known as revocable trust. If you are creating a revocable living trust, you can name yourself as a trustee, but you will have to name a successor trustee to manage your estate if you become incapacitated and to distribute your assets when you die. In this kind of trust, property will pass automatically to the beneficiaries without the delay and expenses involved in probating a will. Living trusts do not have to be probated.
In the Philippines, banking institutions are designated as trustees for a fee.
This concept will be very useful for people to cut cost on probate expenses and estate taxes.
By way of introduction, trust is defined as a legal arrangement by which the assets of one person are transferred to another person or institution for the benefit of a third party. In a trust, the person with the assets (known as the settlor) transfers ownership of his property to someone (the trustee) who promises to administer the property for a third party (the beneficiary) according to the settlor's wishes. Under the Civil Code of the Philippines, "A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards the property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary." (Art. 1440)
In a living trust, the settlor transfers ownership of his property to a trustee who manages it throughout the settlor's lifetime. Upon the death of the settlor, the trustee distributes the trust to the beneficiaries in accordance with the settlor's instructions.
In most cases under US jurisdiction, the settlor of a living trust reserves the right to modify or revoke the trust as long as he lives. This type of living trust is known as revocable trust. If you are creating a revocable living trust, you can name yourself as a trustee, but you will have to name a successor trustee to manage your estate if you become incapacitated and to distribute your assets when you die. In this kind of trust, property will pass automatically to the beneficiaries without the delay and expenses involved in probating a will. Living trusts do not have to be probated.
In the Philippines, banking institutions are designated as trustees for a fee.
This concept will be very useful for people to cut cost on probate expenses and estate taxes.
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