Legal Definitions - gift in trust

A gift in trust occurs when an individual or entity (the donor) transfers ownership of property or assets to a separate legal arrangement called a trust. Instead of giving the property directly to the intended recipient, the donor places it under the management of a designated person or institution (the trustee) for the benefit of one or more specific individuals or entities (the beneficiaries).

The trustee holds legal title to the gifted property and is responsible for managing it according to the detailed instructions and conditions set out by the donor in a formal trust document. The beneficiaries, in turn, receive the benefits from the property as specified by the donor, but they do not have direct control over the assets themselves until or unless the trust terms dictate otherwise.

• Example 1: Funding a Child's Future Education

  A couple wants to ensure their newborn child has funds for college without giving them direct access to a large sum of money too early. They decide to make a gift in trust by transferring $100,000 into an irrevocable trust. They appoint a professional financial institution as the trustee and name their child as the beneficiary. The trust document specifies that the funds, along with any investment growth, are to be used exclusively for the child's higher education expenses, such as tuition, books, and room and board, starting when the child turns 18. The trustee manages the investments and disburses funds directly to the educational institution as needed.

  This illustrates a gift in trust because the parents (donors) transferred money (property) to a trust managed by a financial institution (trustee) for their child's benefit (beneficiary), with specific conditions for its use, rather than giving the money directly to the child.

• Example 2: Supporting an Elderly Relative with Special Needs

  An individual has an elderly aunt with a disability who requires ongoing care and financial support. To ensure her needs are met without jeopardizing her eligibility for government benefits, the individual establishes a special needs trust. They make a gift in trust by placing a significant sum of money and a small rental property into this trust. They appoint a trusted family friend as the trustee. The trust document outlines that the income from the rental property and the investment returns from the money are to be used to supplement the aunt's care, pay for non-covered medical expenses, and enhance her quality of life, without directly providing her with cash that could affect her benefits.

  Here, the individual (donor) gifted assets (money and property) into a trust managed by a family friend (trustee) for the benefit of their aunt (beneficiary), with specific instructions designed to protect her eligibility for other support.

• Example 3: Establishing a Charitable Legacy

  A successful entrepreneur wishes to support a local animal shelter for many years to come. Instead of making a one-time donation, they create an endowment fund by making a gift in trust. They transfer a portfolio of stocks and bonds worth $500,000 into a charitable trust, naming the animal shelter as the beneficiary. They appoint a community foundation as the trustee. The trust agreement stipulates that the principal amount must remain invested, and only a portion of the annual investment income can be distributed to the animal shelter each year, ensuring a perpetual stream of funding for the organization's operations.

  This demonstrates a gift in trust as the entrepreneur (donor) transferred financial assets (property) to a charitable trust managed by a community foundation (trustee) for the ongoing benefit of the animal shelter (beneficiary), with terms designed for long-term impact.