Legal Definitions - trust instrument

A trust instrument is a formal legal document that creates a trust. It is essentially a written agreement or declaration by a person (the settlor) to transfer ownership of their assets (the trust property) to another party (the trustee) to hold and manage for the benefit of specific individuals or entities (the beneficiaries).

This document meticulously outlines the terms and conditions under which the trust property will be managed, distributed, and eventually terminated. It serves as the governing rulebook for the trust, detailing the trustee's duties, the beneficiaries' rights, and the overall purpose of the trust. To be legally valid, a trust instrument must meet specific legal formalities, such as being in writing and properly signed, often with witnesses or notarization. Depending on its terms, a trust instrument can be created during the settlor's lifetime (a living trust) or through their will (a testamentary trust), and it may be revocable (changeable) or irrevocable (unchangeable).

• Example 1: Revocable Living Trust Agreement

  A couple, Sarah and Tom, want to ensure their assets are managed for their children if they become incapacitated or pass away, and they wish to avoid the lengthy probate process. They also want the flexibility to make changes to their plan during their lifetimes.

  They work with an attorney to draft and sign a document titled "The Sarah and Tom Family Revocable Living Trust Agreement." This document specifies that their house, investment accounts, and bank accounts will be transferred into the trust, names a trusted family member as the successor trustee, and outlines how these assets should be used to support their children until they reach a certain age, at which point the remaining assets will be distributed. The document also explicitly states that Sarah and Tom can amend or revoke it at any time.

  This "Revocable Living Trust Agreement" is the trust instrument. It formally establishes the trust, identifies Sarah and Tom as settlors, the family member as trustee, their children as beneficiaries, and their assets as trust property. It also sets out all the rules for managing and distributing those assets, and importantly, defines its revocable nature.

• Example 2: Testamentary Trust within a Will

  Mr. Chen, a single father, wants to leave a substantial inheritance for his 12-year-old daughter, Mei, but he doesn't want her to receive a large sum of money outright when she turns 18. He prefers it to be managed for her education and well-being until she is more mature.

  In his last will and testament, Mr. Chen includes specific provisions for a "Testamentary Trust for Mei." This section of his will acts as the trust instrument, stating that upon his death, a designated portion of his estate will be placed into this trust, naming his sister as the trustee. The document details that the trustee should use the funds for Mei's education, healthcare, and living expenses, and specifies that the remaining principal should be distributed to her in installments when she reaches ages 25 and 30.

  The specific clauses within Mr. Chen's will that establish and govern the trust for Mei constitute the trust instrument. It defines the settlor (Mr. Chen), the trustee (his sister), the beneficiary (Mei), the trust property (a portion of his estate), and all the rules for its administration, which only come into effect after Mr. Chen's death.

• Example 3: Irrevocable Charitable Trust

  Ms. Rodriguez, a successful entrepreneur, wishes to establish a permanent fund to support environmental conservation efforts in her home state, ensuring her legacy continues long after her passing. She wants to make a significant donation now and benefit from certain tax advantages.

  She executes an "Irrevocable Charitable Trust Agreement" with a reputable environmental foundation. This document legally transfers a substantial portfolio of real estate holdings and stocks to the foundation, which will act as the trustee. The trust instrument mandates that the income generated from these assets must be used annually to fund specific conservation projects, such as land acquisition for wildlife habitats and river clean-up initiatives, as detailed in the document, in perpetuity. The agreement explicitly states that it cannot be amended or revoked by Ms. Rodriguez.

  The "Irrevocable Charitable Trust Agreement" is the trust instrument. It formally creates the trust, identifies Ms. Rodriguez as the settlor, the environmental foundation as the trustee and a beneficiary (or manager for the beneficiary class of conservation projects), and her real estate and stock portfolio as the trust property. Crucially, it establishes the trust's irrevocable nature and the perpetual rules for how the funds are to be managed and distributed for its charitable purpose.