Trusts | Expert Guidance from Inheritance Recovery

When considering a Trust contest, it is imperative to understand the dynamics of all parties involved in a Trust. Generally, when a Trust becomes active, the two major parties are the Trustee and the Beneficiaries. The Trustee directs the Trust, and the Beneficiaries are the parties receiving the assets. However, this begs the question of who is ultimately in charge.

When a Trust is created, the Settlor (party to whom the Trust belongs) separates the legal and beneficial ownership of their assets. Legal ownership involves all decision-making aspects; it is a person’s right to use, possess, and give an asset away. Comparatively beneficial ownership is a party’s right to enjoy the benefits of that asset. Typically these ownerships are intertwined as they are rarely looked at as separate. When a party owns something, it is implied that not only do they have the right to make decisions pertaining to that asset, but they also have the right to reap the benefits of it. However, this is not the case when an asset is put in a Trust.

When a Settlor passes, the Trustee becomes the legal owner, and the Beneficiaries are the beneficial owners. A Trustee has legal ownership over assets because they are responsible for managing, dispersing, and handling all assets within the Trust; the Settlor has elected them to carry on their legal ownership. However, unlike typical ownership, where all decisions are up to the owner’s discretion, a Trustee’s legal ownership is regulated. Trustees do not have the right to disperse, manage, or handle the assets as they see fit but rather in correspondence with the instruments of the Trust. This means that all purchasing, selling, and handling of assets must be in line with their fiduciary duties. A Trustee is also exclusively limited to legal ownership, unlike typical ownership. If a Trustee is not named as a beneficiary in the Trust, they do not benefit from their legal ownership. However, because a Trustee is the sole legal owner before asset distribution, they can exercise the power of their legal ownership without any consideration of the beneficiaries of the Trust. A Trustee’s legal ownership allows them to exercise all their decisions unilaterally while the Trust is being carried out. This is why it is imperative to have a Trustee that is trustworthy and reliable.

Beneficiaries are the beneficial owners, meaning that they will be the ones to benefit from the Trust and receive the assets. However, this does not imply that beneficiaries will never have legal ownership. Once assets are dispersed, they will be the sole owners of the assets. Only while the Trust is active, they do not have the power of legal ownership. This is because the purpose of having a Trustee is to designate the burden of legal ownership to one reliable party to ensure equity and a seamless transfer of assets.