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The following chapter discusses typical components of a declaration of trust. There is no default sequence in which the components have to be ordered. However, if a component requires information from another one, it is usually advisable to mention the latter up front. If a certain sequence appears logical, the respective components should be arranged accordingly.

Nevertheless, quite often, several possibilities exist for a certain trust document to be sequenced. Thus, as a trust attorney in San Francisco, I know there is no right or wrong when drafting a trust document. It is understandability, logic, and legal compliance that govern the creation of a trust document. Furthermore, it is very unlikely that all of the components are necessary to mention, as every trust structure is different. Needless to say that unnecessary parts must not show up in a trust document.

One must be aware of this diversity when working with sample trust forms. Sample trust forms must be read carefully and, if necessary, adjusted to the personal situation.

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Parties and the Name of the Trust

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The declaration of trust usually starts with naming the principal parties of the trust: the Grantor and trustee. In living trusts, the initial trustee will be the Grantor himself. Sometimes the names of the beneficiaries are mentioned here as well. However, some trust documents only contain the terms of the trust persons in the respective sections. Others have an annex for the beneficiaries that the declaration of trust refers to.

After that, the trust is usually named. Typically the Grantor’s name is used for the name of the trust, e.g., the “Patricia Williams Trust.” Although unusual, some people like to choose a fantasy name such as the “Harry Potter of Hogwarts Trust.” That is perfectly legal. But if you do so, you should be prepared to see bewildered faces if you transfer your bank account to a trust named “Harry Potter of Hogwarts Trust.” So usually, I advise people to choose a more serious name for their living trust. If there are several trusts of the same Grantor, those should be numbered, e.g., “The Patricia Williams Trust I” and “Patricia Williams Trust II.” Quite often, the Trust document is headed with the name of the trust, too.

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The Trust Property

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Within this section of the declaration of trust, the property you want to put in your trust is to be listed. Usually, the section refers to an annex that lists all the trust property. That annex is generally called “schedule” and is attached to the declaration of trust.

In case there is more than one Grantor of the living trust, each Grantor should list his respective property in a separate schedule. A couple might have shared-ownership property. If so, there should also be a different schedule for the shared property. Spouses, who don’t have any property, do not need to attach a separate schedule to the living trust document.

Listing an item of property on the attached schedule does not always automatically transfer the respective item to the living trust. Property with a document of the title must be separately transferred to the living trust. That could be a deed to a house, for example. Such property can be shared by changing the respective title towards the trustee. Usually, an explanatory phrase is mentioned in addition to the trustee’s name:  “as trustee for the [name of the Trust].” Ordinary goods without a document of title can simply be put in the trust by including them in the living trust schedule. Taking property out of the trust requires a similar procedure. For further reference, see the respective chapter below.

My practice as a trust lawyer at Walnut Creek has often taught me that things are constantly changing in life. People acquire new property during their lifespan or tie in new relationships. All that might require a different setup of the trust assets.

Accordingly, our law firm usually drafts the declaration of trust with a supplementary clause that allows the Grantor to add property to the trust at any time. In addition, a clarifying clause frequently stipulates that the trust property shall be used for the benefit of the trust beneficiaries and shall be administered and distributed by the trustee in accordance with the declaration of trust.

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Powers of the Grantor

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In a basic trust, this section generally ensures that the Grantor remains in control of the living trust. It usually stipulates the right of the Grantor to amend or revoke the trust at any time, therewith rendering the trust revocable. In addition, it clarifies the sole role of the Grantor as Grantor, trustee, and beneficiary of the living trust. The declaration, therefore, grants the Grantor the right to retain all income, profits, and control of the trust assets until he or she dies.

Being a diligent trust attorney in San Francisco, I regularly include a homestead right within this section. Such a feature is often used by provident estate planning attorneys in California to uphold homestead rights for the Grantor despite the fact that he no longer legally owns the respective property (because it has been transferred to the trustee).

Another point of high importance is a provision dealing with the incapacity of the Grantor. Because the successor trustees do not receive any control of the trust until the Grantor dies, there must be a precaution in the case that the Grantor becomes mentally ill or otherwise unable to manage his own estate. Usually, a clause stipulates that the successor trustee takes over control of the trust as soon as the Grantor becomes incapacitated. This section is often complemented by naming someone (often a medic) who is entitled to determine Grantor’s state of mind. Often a person (whom the Grantor literally trusts) is named here, e.g., the family doctor.

Finally, a provision clarifies that the trust becomes irrevocable upon the death of the Grantor.

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Trustees

In plain words, this section of the living trust can be described as a guidebook for the successor trustee that becomes active as soon as the Grantor dies.
 
Although during their lifetime, the Grantor is mostly identical to the trustee of a living trust, he is not bound by the management restrictions set forth in this section. We have learned above that until the Grantor dies or becomes incapacitated, he alone has the right to revoke or amend the trust. Therefore he’s not bound by his own rules as long as the living trust is revocable.

Nomination of Trustees

A very important point in this section is the nomination of one or more successor trustees. The successor trustee is the person who will be in charge of the trust once the Grantor dies or becomes incapacitated. In addition, alternative trustees are nominated here. Alternative trustees step into the footsteps of the original trustee in case he becomes unavailable after the trust is set up.

An estate planning lawyer may include other items within this section. That could be a regulation regarding the resignation of the trustee or the appointment of new successor trustees in the case that the main trustee and all alternative trustees become unavailable for whatever reason. Sometimes a bond waiver is included as well. Other subjects here include the compensation of the trustee and his liability for serious cases of misconduct.
 

Trustee’s Power and Duties

This subsection deals with the specific powers and duties of a trustee. Usually, it starts with a general clause that confers all necessary authorities and powers to the trustee as far as the respective state laws allow. The empowerment is generally subject to the trustee’s fiduciary duty to the Grantor and the beneficiaries.

Besides the general clause, normally the powers of the trustee are further specified here. That does not mean that the powers of the trustee are restricted to those specified points. The trustees' powers regularly include:
 

• The power to pay the Grantor’s debts and taxes

• The power to sell or encumber trust property

• The power to manage the trust’s real estate (e.g., to lease the trust property)

• The power to invest trust property in property of any kind and the power to choose the kind of diversification of the trust assets

• The power to receive any additional property for the trust

• The power to employ consultants (e.g., lawyers and accountants) and pay the respective (reasonable) fees, including the power to institute or defend legal actions regarding the trust

• The power to deposit trust funds into bank accounts (sometimes even if not covered by the FDIC) and to enter the necessary agreements with the respective institutions (e.g., signing up for online banking)

• The power to continue any business of the Grantor

 

Especially if a close family member is chosen as a successor trustee, the declaration of trust often waives the obligation of the trustee to conduct accounting and reporting in respect of the trust assets.

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Beneficiaries

Nomination of Beneficiaries

The Beneficiaries are the persons who profit from the trust after the Grantor has died. There can be any number of beneficiaries. Often the first point in this subchapter is one of the most significant ones: the nomination of the beneficiaries. In most instances, this happens within this section, but sometimes the beneficiaries are nominated in a separate annex. In that case, the declaration refers to the annex.

If a beneficiary is unavailable at the time of trust distribution, alternative beneficiaries are usually named. Alternative beneficiaries receive the specific trust property that is stated to be distributed to them if the respective primary beneficiary is not available upon the death of the Grantor.
 
Furthermore, most trust documents contain an additional clause that nominates a so-called “residuary beneficiary.” Residuary beneficiaries receive all trust property that is not designated to a regular beneficiary or alternate beneficiary. Quite often, charity organizations are chosen to be the residuary beneficiary.
 

 

 

 

Distribution of Trust Property

This section covers the modalities of how the assets of the trust are distributed. Primary and alternative beneficiaries can be chosen for each item in the trust. Alternatively, the trust assets as whole can be distributed on a quota basis. In this variant, the declaration of trust usually stipulates that all the trust property shall be given to the beneficiaries in equal shares.
 
However, if there is only one beneficiary, this clause can simply state that all the trust assets shall be given to the single beneficiary.

No-Contest Clause

Some grantors include a so-called no-contest clause in the trust document. A no-contest clause usually stipulates that a beneficiary who initiates an unsuccessful lawsuit challenging the trust forfeits all his rights as a beneficiary. Those clauses are used to discourage beneficiaries from claiming that they are entitled to a greater share of the estate as the trust document provides. No-contest clauses are highly effective in ensuring the realization of your estate plan, yet they are rarely used. The reason for this reluctance is the implication of mistrust that could emanate from such a clause. Therefore many grantors refrain from using no-contest clauses.

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General Provisions

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Here we find further provisions that are usually part of a declaration of trust yet do not fit into the aforementioned categories.

Every declaration of trust should contain a choice-of-law clause. As a trust attorney in San Francisco, I usually advise my local clients to choose Californian trust law. Moreover, this section may contain a clause to ensure the effectiveness of the declaration of trust even though any provision of the declaration is void or unenforceable.

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Creation of a Children's Trusts

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In case there are any minor children left by the Grantor, the living trust document often contains a section that governs the creation of separate children’s trusts upon the death of the Grantor. Those trusts are sub-trusts to the living trust.

The section especially contains:

• The age limit up to that the trust property is to be held in trust

• The special duties of the child’s trust trustee (e.g., what the trust property and its profits can be spent on)

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The Uniform Transfers to Minors Act (UTMA)

An alternative to children’s trusts is the use of the respective Uniform Transfers to Minors Act (UTMA). The UTMA is a uniform act enacted by most U.S. States, including California. It provides a mechanism under which gifts can be made to a minor without requiring the presence of an appointed guardian for the minor. The act allows the donor of a gift to transfer the title to a custodian who will manage and invest the property until the minor reaches a certain age. Under Californian state law, the maximum age is 25.

Advantages of UTMA

Using the UTMA instead of a children’s Trust can sometimes be preferable because the UTMA-system has some advantages. For instance, the practical handling of the beneficiary’s property can be easier for a nominated custodian because his powers follow fixed rules every institution (e.g., a bank) is familiar with. In addition, there can be some tax advantages regarding the income tax in respect of the asset-generated income.

Your local estate planning attorney, for example, Rinne Legal in San Francisco, Fairfield, Oakland, Walnut Creek, and Sacramento, will advise you on an option that is favorable for your specific situation.

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Certification by the Grantor

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Finally, the declaration of trust is to be signed by the Grantor. According to his special role in a living trust, he usually signs as Grantor and trustee. The signature is normally supplemented by a statement that the Grantor has thoroughly read and understood the declaration of trust and is willing to approve it with his signature.