Glossary of Terms — Trusts
A trust is a property interest whereby property is held by an individual or entity (such as a bank) called the trustee, subject to a fiduciary duty to use the property for the benefit of another (the beneficiary).
A grantor (also called a settlor or trustor) is the individual who provides the trust principal (or corpus). The grantor must be the owner or have legal right to the property or be otherwise qualified to transfer it. Therefore, an individual may be a grantor even if an agent, or other individual legally empowered to act on his/her behalf(e.g., a legal guardian, representative payee for Title IIIXVI benefits, person acting under a power of attorney, or conservator), establishes the trust with funds or property that belong to the individual. The individual funding the trust is the grantor, even in situations where the trust agreement shows a person legally empoweredto act on the individual’s behalfas the grantor. Where more than one person provides property to the trust, there may be multiple grantors. The terms grantor, trustor, and settlor may be used interchangeably.
A trustee is a person or entity who holds legal title to property for the use or benefit of another. In most instances, the trustee has no legal right to revoke the trust or use the property for his/her own benefit.
A trust beneficiary is a person for whose benefit a trust exists. A beneficiary does not hold legal title to trust property but does have an equitable ownership interest in it. As equitable owner, the beneficiary has certain rights that will be enforced by a court because the trust exists for his/her benefit. The beneficiary receives the benefits of the trust while the trustee holds the title and duties.
The trust principal is the property placed in trust by the grantor which the trustee holds, subject to the rights of the beneficiary, and includes any trust earnings paid into the trust and left to accumulate. Also called “the corpus of the trust.”
Trust Earnings (Income)
Trust earnings or income are amounts earned by the trust principal. They may take such forms as interest, dividends, royalties, rents, etc. These amounts are unearned income to any person legally able to use them for personal support and maintenance.
A Totten trust, or “bank account trust” is a tentative trust in which a grantor makes himselflherself trustee of his/her own funds for the benefit of another. Typically this is done by an individual depositing funds in a savings account and either titling the account or filing a writing with the bank indicating helshe is trustee of the account for another person. The trustee can revoke a Totten trust at any time. Should the trustee die without revoking the trust, ownership of the money passes to the beneficiary. Totten trusts are valid in mostjurisdictions, but otherjurisdictions have held them invalid because they are too tentative, i.e., they lack formal requirements and do not state a trust intent or purpose.
Subject to State law, a grantor trust is a trust in which the grantor of the trust is also the sole beneficiary of the trust. See 8101120.2008.2. for who may be a grantor. State law on grantor trusts varies. Consult with your Regional Office if necessary.
A mandatory trust is a trust that requires the trustee to pay trust earnings or principal to or for the benefit of the beneficiary at certain times. The trust may require disbursement of a specified percentage or dollar amount of the trust earnings or may obligate the trustee to spend income and principal, as necessary, to provide a specified standard of care. The trustee has no discretion as to the amount of the payment or to whom it will be distributed.
A discretionary trust is a trust in which the trustee has full discretion as to the time, purpose and amount of all distributions. The trustee may pay to or for the benefit of the beneficiary, all or none of the trust as helshe considers appropriate. The beneficiary has no control over the trust.
Medicaid Trust or Medicaid Qualifying Trust
See 81 01730.048 for definitions of a Medicaid trust or a Medicaid qualifying trust and see 81 01120.200H. for additional guidance on these trusts. See 8101120.203 for SSI treatment of Medicaid trust exceptions.
A residual beneficiary (also referred to as a contingent beneficiary) is not a current beneficiary of a trust, but will receive the residual benefit of the trust contingent upon the occurrence of a specific event, e.g., the death of the primary beneficiary.
Supplemental Needs Trust
A supplemental needs trust is a type of trust that limits the trustee’s discretion as to the purpose of the distributions. This type of trust typically contains language that distributions should supplement, but not supplant, sources of income including SSI or other government benefits.
Inter Vivos Trust
An inter vivos trust is a trust established during the lifetime of the grantor. It may also be called a living trust.
A testamentary trust is a trust established by a will and effective at the time of the testator’s death.
Spendthrift Clause or Spendthrift Trust
A spendthrift clause or trust prohibits both involuntary and voluntary transfers of the beneficiary’s interest in the trust income or principal. This means that the beneficiary’s creditors must wait until money is paid from the trust to the beneficiary before they can attempt to claim it to satisfy debts. It also means that, for example, if the beneficiary is entitled to $100 a month from the trust, the beneficiary cannot sell his/her right to receive the monthly payments to a third party for a lump sum. In other words, a valid spendthrift clause would make the value of the beneficiary’s right to receive payments not countable as a resource. However, spendthrift clauses are not recognized in all States. Additionally, States that recognize spendthrift trusts generally do not allow a grantor to establish a spendthrift trust for his/her own benefit, i.e., as a beneficiary. Thus, using the example from above, in those States where spendthrift clauses are not recognized (whether at all or because the trust is a grantor trust), the value of the beneficiary’s right to receive monthly payments should be counted as a resource because it may be sold for a lump sum.
A third-party trust is a trust established with the assets of someone other than the beneficiary. For example, a third-party trust may be established by a grandparent for a grandchild. Be alert for situations where a trust is allegedly established with the assets of a third party, but in reality is created with the beneficiary’s property. In such cases, the trust is a grantor trust, not a third-party trust.
Fiduciary duty is the obligation of the trustee in dealing with the trust property and income. The trustee holds the property solely for the benefit of the beneficiary with due care. The trustee owes duties of good faith and loyalty to exercise reasonable care and skill, to preserve the trust property and make it productive and to account for it. Because the trustee is a fiduciary does not mean that he/she is an agent of the beneficiary. The person who establishes a trust should not be confused with the grantor, who provides the assets that form the principal of the trust.
The grantor of a trust may have the power or authority to revoke (i.e., reclaim or take back) the assets deposited in the trust. If the individual at issue (a claimant, recipient, or deemor (see 81 01310.127)) is the grantor of the trust, the trust will generally be a resource to that individual if that individual can revoke the trust and reclaim the trust assets. However, if a third party is the grantor of the trust, the trust will not be a resource to the beneficiary of the trust merely because the trust is revocable by the grantor. In a third party trust situation, the focus should be on whether the individual (claimant, recipient, or deemor) can terminate the trust and obtain the assets for him or herself.
In rare instances, a trustee or beneficiary of a third-party trust (i.e., a trust established with the assets of a third party) can terminate (i.e., end) a trust and obtain the assets for him or herself.
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