What is a special trust?

A "special trust" requires a trustee to actively execute a settlor’s instructions. A special trust varies from a simple trust in that these actions can include selling the trust property and using the proceeds to pay off debts or investing cash that is part of the trust in a particular manner; whereas the trustee simply transfers the trust property to the beneficiaries at the time specified by the settlor.

A "settlor" is the creator of the trust and responsible for choosing a "trustee" to manage the property and distribute to beneficiaries as chosen by the settlor. Trustees and beneficiaries generally can be people or organizations. Depending on the settlor’s wishes, beneficiaries may either receive the trust property directly or the benefits of the property, like regular income from stocks that pay dividends.

Creating a Special Trust

The instructions for a special trust are usually documented in the trust agreement. This is essentially a contract between the settlor and the trustee and creates a fiduciary duty on the part of the trustee – that means the trustee must act in the best interests of the trust’s beneficiaries. The trust agreement also names the beneficiaries and states the purpose and duration of the trust. The trust agreement may be expressed orally or in writing, and sometimes, the agreement can be implied by the settlor’s conduct.

In creating a special trust, settlors must consider several factors. They must think about their age and health, personal and professional relationships, assets and debts, what they want to accomplish with the trust, the needs of their beneficiaries, and whether their wishes could change. All of this information will help the settlor determine the instructions the trustee must follow and the actions the trustee must take to ensure that their wishes are executed as close as possible to their intentions.

The settlor also needs to carefully consider where the special trust is created because laws concerning trusts are governed by state law, which vary by state. Generally, a trust can be established in either the state where the settlor or trustee lives. In addition, since a special trust requires extra work from the trustee, the settlor may want to consider selecting a trustee that is competent and experienced in managing assets and finances.

Getting Legal Help

Special trusts can be a good way to manage property in a specific manner for beneficiaries, but they can be complex, so be sure to seek the advice of a qualified attorney with experience in trusts and estates before establishing a special trust.