Shareware Overload Trio 2/Shareware Overload Trio Volume 2 (Chestnut CD-ROM).ISO/dir33/1798_r.zip/TRUST.LAW

Text File | 1993-12-26 | 6KB | 109 lines

     In law, a trust is a form of property ownership in which one
     person agrees to hold property for the benefit of another. The
     person holding the property is called the trustee, and the
     person who benefits is called the beneficiary.

     Fiduciary Relationship.

     The duty of the trustee is to manage the property solely in the
     interest of the beneficiary. This is called a fiduciary
     relationship because the trustee is expected to act in good
     faith and to work loyally for the interest of the beneficiary.
     The beneficiary has no power or right to tell the trustee how
     to perform his or her tasks--for example, what stocks or bonds
     to buy or sell. The trustee is regarded as the legal owner of
     the property, the beneficiary as the equitable owner. Thus, in
     the eyes of the law the trust involves dual ownership: the
     trustee has the right to administer the property, and the
     beneficiary has the right to enjoy its benefits. If the
     beneficiary believes that the trustee is not acting in his or
     her best interests, the only recourse is to file a law suit
     against the trustee.

     Origin of the Trust Concept.

     The trust institution exists only in Great Britain, the United
     States, and other countries whose legal systems are derived
     from British COMMON LAW. The origin of the trust concept lies
     in the dual system of courts that grew up in England. In
     addition to the traditional judicial system, a separate and
     somewhat competing entity, the court of chancery or EQUITY,
     also developed. The traditional law courts treated the trustee
     as the owner of the property. If a beneficiary claimed that the
     trustee had not fulfilled his duty to hold the property in
     trust for the beneficiary, the latter could get no relief in
     the law courts. The court of equity, however, was willing to
     step in and prevent the trustee from handling the property in
     any way other than for the advantage of the beneficiary. Thus
     the rights of the beneficiary came to be called those of
     equitable ownership, because only the equity court would
     protect them.

     The Testamentary Trust.

     A trust created in a will is called a testamentary trust. Such
     a trust is most commonly used in family situations. For
     example, a father who is a successful businessman may have
     several small children. He wishes to leave his property to his
     wife and the children if he should die, but his wife does not
     want the responsibility of managing the property, and the
     children are too young to do so. The father, in his will, can
     leave his property to a trustee, such as a bank. The bank will
     be instructed to invest and reinvest the property as it deems
     best. It will pay out the income from the property to the man's
     wife for her life, and then to the children until they reach a
     certain age, such as 25. After that it will turn the property
     over to the children, and the trust will terminate.

     The Inter Vivos Trust.

     In the foregoing example the father created the trust in his
     will, to take effect upon his death. Trusts also may be created
     inter vivos, a Latin phrase used by lawyers that means "between
     the living." Thus the father could have transferred his
     property to the bank in trust while he was still alive. The
     bank would have paid the income to him until he died, and then,
     to the wife and children.

     The creator, or settlor, of an inter vivos trust may retain the
     right to revoke the trust at any time. If the creator does
     retain that right it is called a revocable trust. A revocable
     trust is, in effect, a conditional gift to the beneficiaries,
     because it may be revoked at any time by the settlor. This
     feature of a revocable trust contrasts with the normal rule of
     law relating to gifts, which is that a gift once given cannot
     be revoked.

     The trust arrangement is also used in a variety of situations
     in which it seems desirable to separate the management and
     control of property from its beneficiaries. A trust may be
     established for charitable purposes, such as providing
     scholarships for needy students. Pension trusts are established
     by business firms to provide retirement benefits for their
     employees. Insurance trusts can be used to hold insurance
     policies and to dispose of the proceeds upon the death of the
     insured. Another reason trusts are instituted is to prevent
     estate shrinkage through debts, taxes, and expenses.

     Trustees.

     Because of the broad powers given to the trustee, selection of
     the trustee is done with great care. Commercial institutions
     have arisen that engage specifically in the business of acting
     as trustees. They are paid a fee out of the income of the
     trust. Usually such commercial trustees are also engaged in the
     banking business. They often have the word trust in their bank
     name and maintain a trust department that is separate from
     their banking activities. In the United States approximately
     3,000 institutions--banking and nonbanking--act as trustees.

     Business Trusts.

     In the late 19th century the word trust was applied to certain
     American business combines in which the trust device was used
     to give a few trustees control over large blocks of stock. By
     extension, the word came to mean any mammoth business firm and
     eventually combinations of such firms to eliminate competition.
     In 1890, Congress passed the SHERMAN ANTI-TRUST ACT, directed
     at business combinations found to be "in restraint of trade."