Characteristics of a Trust. It's definition and the benefits you get from working with one.

What is a trust?

Before continuing, I always want to express that the information provided is for the purpose of providing you with a consult, which will help you to decide what are the options you can count on, based on your budget, needs and reality when analyzing your financial protection. I am not a financial analyst nor will I ever make any decision or tell the client which product he needs. It is a sole decision of the client, and you are always urged to consult with your accountant or CPA with any questions related to your financial status before making a decision. With that said, let's discuss highlights of what a trust is, how it helps us, and how we take advantage of it, as well as the steps to take to develop one.

A trust is a fiduciary agreement of certitude, that allows a person to give others the ownership of assets so that they manage them for the benefit of a third party. It is an autonomous patrimony that results from the act by which the settlor transfers assets or rights, and that will be administered by the trustee for the benefit of the trust or for a specific purpose, in accordance with the provisions of the constitutive act and, failing that, in accordance with the provisions of this Law*

*"Trust Law" of Puerto Rico [Act 219-2012, as amended]*

Types of trusts

Inter-Vivos Trust

In the United States, individuals can protect their families and avoid intestacy with a basic living trust. Unlike a will, a living, inter vivos, or living trust allows your family to avoid probate court, saving everyone money, delays, and trouble.

The inter vivos trust holds the assets of a trustee. They have the advantage that they help the succession or the legal process in the distribution of the owner's assets after death. The trustee may hold such title for life or until a named reserve in the trust is allowed to take over. The inter vivos trust allows the owner or trustee to use the assets and make use of the trust during the life of the trustee.

Testamentary Trust

Like wills, testamentary trusts (formally known as revocable trusts) list the people who will receive your assets after you die, allowing you to freely manage them while you're alive. These trusts avoid probate trials, which is often part of their appeal. Probate is the legal process by which a will is accepted as genuine, creditors are paid, and heirs receive the assets to which they are entitled. These steps are made in private by the trustee of the trust.

This type of trust is useful in certain situations. If the probate trial is expensive (as it is in states where attorneys charge a percentage of the estate's assets rather than a fixed or hourly fee); if you have assets in more than one estate (to avoid double succession); or if you have assets that need ongoing management, as part of a business or operating accounts. If you become incapacitated, you can appoint support persons to manage your affairs whether or not you have a trust. If you don't have it, you can give that power to the person of your choice. With a trust, the trustee you choose will act on your behalf. Perhaps the transition will be a little easier with the trust, but not necessarily.

Trusts require more paperwork. You must transfer all of your assets to your name as trustee, including the deed to the house, bank and investment accounts (which typically do not include tax-deferred retirement accounts), valuable personal property, and any new assets that acquire. You will need legal advice, which increases the cost of living trusts compared to a basic will.

Trust for public purposes

Legal instruments created by the public administration in order to fulfill a lawful and determined purpose, in order to promote economic and social development through the management of public resources administered by a fiduciary institution. Likewise, through the trust agreement, various state programs and projects that pursue the common good are followed up. The public trust is constituted by means of a public deed, in which the conditions that will govern it are reflected. Depending on the purposes for which they were created, these can be administration, investment and guarantee.

What are these public purposes?

Poverty alleviation.
The promotion of education, religion or health.
Government or municipal purposes, such as the erection and maintenance of monuments, statues, public parks and the like.
Any other purpose whose achievement is of benefit to the community in general, particularly those that have philanthropic, cultural, religious or scientific purposes.

Elements of a trust

Creator (grantor / settlor) The settlor can be any natural or legal person who has the capacity to set up a trust for the benefit of the trustee or for a specific purpose. An inter vivos trust can have more than one settlor. Said natural person has the capacity to be a settlor to the extent that he or she has the capacity to transfer said assets inter vivos or by reason of death, free of trust. The legal person has the capacity to be a settlor to the extent that, by virtue of the law, it has the capacity to transfer the trust assets to the particular trust.

Trustee (administrator) Is the natural or legal person designated in the act establishing the trust to manage the trust assets, according to the provisions of said act, for the benefit of the trustee. The settlor may be the trustee. The trustee may be the trustee, as long as he or she is not the sole trustee. If the trust has several trustees, all of them can be trustees. The State can be trustee, provided that the law expressly authorizes it for the particular trust.

Property (corpus / principal) A good analogy for learning about trusts is to think of your home. When you own your home, you have the right to live in it, which can be seen as a benefit. You also have the legal rights to rent, lease or sell your home. A trust is a form of property ownership that separates beneficial ownership from legal ownership. You name a trustee to be the legal owner of the assets while you name one or more beneficiaries who will enjoy the benefits of the property placed in the trust. The person who created the trust and transferred ownership of the assets to the trust is known as the grantor or settlor.

Beneficiaries. It is the natural or legal person, a government entity or an association that receives the income, the capital, or both. It may also be a person who does not exist at the time the trust is established, but who is expected to exist within the term established in article 6 of the "Trust Law" [Law 219-2012, as amended] of Puerto Rico. Beneficiaries can be natural or legal persons, government entities or associations that may or may not exist at the time of the constitution of the trust; in the latter case, sufficient circumstances must be expressed for their identification. The settlor can be the beneficiary of the trust, even if he is the only one. The trustee may be the beneficiary provided that he or she is not the sole beneficiary or, if so, the trust appoints at least one other trustee. Members of a defined class of persons may be beneficiaries of a trust.

Among the uses that a trust can provide you, is obtaining a competent and professional administration of the assets. Establish income distribution provisions. The investment of the corpus (the principal) in the trust. The continuity of income to the beneficiaries. Protection against third party claims of the trust assets. Provide income and asset security to beneficiaries. Provide administration after the death of the settlor. Consolidate accumulations of wealth from trust assets and tax savings since distributions are deductible.

Examples of clauses within a trust

Medical plan payment.
Condition of studies for corpus distribution (main).
No access to trust funds in case of illicit acts or alcohol or drug abuse.
Payment of studies.
Bonuses for meeting goals.
Asset investment instructions.
Payments to fiduciaries.
Using professionals to help manage the trust.

Strategy Benefits

It eliminates the intervention of the family court and the Attorney for Minors.
Provides surviving spouse control over assets (investment, management, and distribution methods).
Conditions access to the corpus (main) of the trust of those items left against the freely available half and controls assets in the forced half up to the majority of the children (H1 + H2)
Conditions the use of funds from life insurance policies.
Creditor protection.

Other uses

Protection of assets against creditors or lawsuits.
Asset management.
Benefits to charities.
Individuals with special needs.
Incapacity of the settlor(s).
Retirement plans.
Be planning.
Income guarantees.
Benefits of usufruct (use and enjoyment of a property for life, etc.)

I hope that the summary of the characteristics of a trust and how it provides benefits has been useful to you. As an authorized representative, I can provide you with access to certified financial analysts who are ready to sit down with you and start working on the asset protection system that fits your needs. Fill out the pre-evaluation form and schedule your consultation. It is free of charge and the first stage in the development of a safe plan.

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