Legal help for storyline: What kind of Trust do I need?

Elusive Wanderer · Jan 22, 2013

My story is set in the state of California. MC’s father left her a trust before he died. Basically, without bogging the reader down in too many details, I need to know what sort of Trust would work for this scenario. I have done the research (even looked through my textbook from when I took paralegal classes) but I need more specific information than what I am finding. This are the features I want in the Trust:

Grantor owns a major corporation and started the Trust before his death 20 years ago. One of the company atty’s acts as trustee. After grantor’s death, profits from the company continue to go into the trust, building the funds slowly over time. At some point, the beneficiary is able to borrow against the trust. Beneficiary is able to have complete access to the trust when she turns 22.

I am thinking a Testamentary Trust would work for this (or maybe even a Spendthrift Trust), but still not sure?

Ari Meermans · Jan 22, 2013

I'm a little confused by the scenario, so I have a question and a couple of comments:

1. Did the MC's father support her until his death? If he did, then having an irrevocable trust created through his will (Testamentary Trust) would be the way to go.

2. A minor child wouldn't be able to borrow against the trust, but a designated amount would be paid out in some manner—either directly to the guardian or through payment of bills submitted by the guardian—by the trustee for her "normal maintenance and upkeep", which could also include some sort of specified allowance to the child.

3. A Spendthrift Trust is usually set up for someone who can't be trusted to manage their money. It keeps creditors (or supposed creditors) from dipping into the trust. Generally, you wouldn't set up this type of trust for a minor child. You'd set up a regular Irrevocable Trust for the Benefit and Maintenance of . . .

Does any of this help?

jclarkdawe · Jan 22, 2013

So let's see if the timeline in my head is right.

1992 - daughter is born

1993 - guy dies, and will probated

2013 - present time, 20 years after death

2014 - daughter gains full control of property

Any trust established under a will is a testamentary trust. A spendthrift trust would be more likely to apply to someone over twenty or so and is designed to control the spending of someone who isn't able to.

So in 1993, guy dies and pursuant to his will, a trust is established for the care of his daughter. Principal and income over and above the need for the care of his daughter are to be retained by the trust.

In 2010, daughter turns 18 and is entitled to receive a portion (or all) of the trust's income. She is not "borrowing" from the trust. She is receiving a disbursement.

In 2014, daughter receives the principal of the trust, plus retained income.

Big question here is whether the corporation is privately or publicly held. Privately held and this becomes a lot more complicated.

Best of luck,

Jim Clark-Dawe

BenPanced · Jan 22, 2013

Unless the details about the trust are tied directly into the story (profits tied to embezzlement or other illegal activity, funds being skimmed, etc.), I personally wouldn't sweat the details about the trust. Narrowing it down to spendthrift vs. irrevocable vs. testamentary and how those are created and the pros/cons involved would make my eyes glaze over. Just give the reader the info they need. "Congratulations, Sheba. Your great-grandfather started the trust when you were born. Now that you're 22, you're entitled to the funds therein." *shoves pile of cash in Sheba's direction* "Don't spend it all in one place!"

Elusive Wanderer · Jan 22, 2013

Ari Meermans said:
I'm a little confused by the scenario, so I have a question and a couple of comments:

1. Did the MC's father support her until his death? If he did, then having an irrevocable trust created through his will (Testamentary Trust) would be the way to go.

2. A minor child wouldn't be able to borrow against the trust, but a designated amount would be paid out in some manner—either directly to the guardian or through payment of bills submitted by the guardian—by the trustee for her "normal maintenance and upkeep", which could also include some sort of specified allowance to the child.

3. A Spendthrift Trust is usually set up for someone who can't be trusted to manage their money. It keeps creditors (or supposed creditors) from dipping into the trust. Generally, you wouldn't set up this type of trust for a minor child. You'd set up a regular Irrevocable Trust for the Benefit and Maintenance of . . .

Does any of this help?

Yes, it helps, thank you! The MC's parents die when she is eight months old. Father leaves a trust for her, but does not want her to have access to it until she is older and (presumably) responsible. The story I am going with is this: the CEO of the company, that was started by father/grantor, steals MC's identity in order to steal or borrow from the trust. She does this with the assistance of the company attorney/trustee. With an irrevocable trust, can there be provisions that a certain percentage of profits from the company go into the Trust until MC reaches age 22? Hopefully that makes sense.

Elusive Wanderer · Jan 22, 2013

jclarkdawe said:
So let's see if the timeline in my head is right.

1992 - daughter is born

1993 - guy dies, and will probated

2013 - present time, 20 years after death

2014 - daughter gains full control of property

Any trust established under a will is a testamentary trust. A spendthrift trust would be more likely to apply to someone over twenty or so and is designed to control the spending of someone who isn't able to.

So in 1993, guy dies and pursuant to his will, a trust is established for the care of his daughter. Principal and income over and above the need for the care of his daughter are to be retained by the trust.

In 2010, daughter turns 18 and is entitled to receive a portion (or all) of the trust's income. She is not "borrowing" from the trust. She is receiving a disbursement.

In 2014, daughter receives the principal of the trust, plus retained income.

Big question here is whether the corporation is privately or publicly held. Privately held and this becomes a lot more complicated.

Best of luck,

Jim Clark-Dawe

Yes, timeline is correct. I hadn't thought of the logistics of the company being privately vs. publicly held. This may be trickier than I thought.

I was really hoping to stay away from too many details for the simple reason that my novella is primarily romance/erotica with a mystery/thriller spin. As I delve further and further into it, it's quickly turning into a novel heavy with corporate mystery and intrigue... oh well. I still need it to be realistic, so thanks for the help!

Elusive Wanderer · Jan 22, 2013

BenPanced said:
Unless the details about the trust are tied directly into the story (profits tied to embezzlement or other illegal activity, funds being skimmed, etc.), I personally wouldn't sweat the details about the trust. Narrowing it down to spendthrift vs. irrevocable vs. testamentary and how those are created and the pros/cons involved would make my eyes glaze over. Just give the reader the info they need. "Congratulations, Sheba. Your great-grandfather started the trust when you were born. Now that you're 22, you're entitled to the funds therein." *shoves pile of cash in Sheba's direction* "Don't spend it all in one place!"

Ha! If you read my post above, that's exactly what I stated.

I do, however, feel like I need to have an understanding of how it works, as my antagonist needs to have some sort of (illegal) access to the trust. It's a big component of the story. But yes, I agree! I do NOT want my reader's eyes to glaze over. Thanks for the help!

Ari Meermans · Jan 22, 2013

Elusive Wanderer said:
Yes, it helps, thank you! The MC's parents die when she is eight months old. Father leaves a trust for her, but does not want her to have access to it until she is older and (presumably) responsible. The story I am going with is this: the CEO of the company, that was started by father/grantor, steals MC's identity in order to steal or borrow from the trust. She does this with the assistance of the company attorney/trustee. With an irrevocable trust, can there be provisions that a certain percentage of profits from the company go into the Trust until MC reaches age 22? Hopefully that makes sense.

I think it's too convoluted and not really practicable. btw, Jim has the legal expertise and I have the Bank Trust Management/Trust Investment Management experience.

The reason I'm saying it's not practicable is purely from the banking side. The trust assets will be held in trust accounts at one or more banks. The bank trust department(s) will produce, usually quarterly, trust statements showing deposits, withdrawals, etc. In short, all account activity. These statements are reviewed by staff in the trust department. If the bank also manages assets such as equity securities (money market, stocks, etc.), portfolio management (Trust Investment Operations) comes into play, as well. The original trust document is part of the trust management process and will have a senior bank officer overseeing it. In my experience, our officers knew their beneficiaries pretty well and knew when the trust was expected to "age"; that is, when the beneficiary would come into ownership. So far, okay?

Now a dishonest trustee could skim fairly easily with fraudulent documents of payouts and padding his administrative fee if the trust terms are fluid enough. But, he'd be careful not to raise red flags for the trust officer, trust department, and auditors. It can be done, but he'd have to be savvy. A lot depends on the trust terms and what it leaves to the trustee's discretion. You could have the bank's trust officer as the cohort and mitigate a lot of the risk from that perspective.

Your scenario with the CEO stealing the MC's identity wouldn't work well, if at all, given the above circumstances. She could be in cahoots with the trustee/lawyer, but the illegalities would all be in his hands in a real world situation as, not being a signatory as named in the trust, she couldn't get to the funds directly.

This is probably more than you needed to know and I hope I haven't given you a headache.

Your best bet is to keep it simple as Ben mentioned and not try to do the identity theft part.

jclarkdawe · Jan 23, 2013

Repeat everything Ari says.

A testamentary trust for the benefit of a minor requires judicial supervision in every state that I'm aware of. Every year the trustee will be required by the court to file an accounting of everything that has been done by the trustee. If the testamentary trust is of enough value (this one probably would be), the judge is going to appoint an attorney to represent the interests of the child. So not only does a bank/investment company monitor this stuff closely, so doesn't the court.

And going back to whether this is a privately held or publicly held corporation. If this is privately held, the child is going to be taken down to the company on occasion, with the occasions increasing as the child grows up. You want the child somewhat familiar with the business for when he or she grows up and takes over control, and you want the executives to know who their future boss is going to be.

I've tried figuring out how to make this work, and can only come up with one idea. The fake character goes into places like car dealerships and other places and uses the trust to secure car loans and stuff like that. The trustee would not be involved and this would be straight up identity theft.

Best of luck,

Jim Clark-Dawe

Elusive Wanderer · Jan 23, 2013

Ari Meermans said:
I think it's too convoluted and not really practicable. btw, Jim has the legal expertise and I have the Bank Trust Management/Trust Investment Management experience.

The reason I'm saying it's not practicable is purely from the banking side. The trust assets will be held in trust accounts at one or more banks. The bank trust department(s) will produce, usually quarterly, trust statements showing deposits, withdrawals, etc. In short, all account activity. These statements are reviewed by staff in the trust department. If the bank also manages assets such as equity securities (money market, stocks, etc.), portfolio management (Trust Investment Operations) comes into play, as well. The original trust document is part of the trust management process and will have a senior bank officer overseeing it. In my experience, our officers knew their beneficiaries pretty well and knew when the trust was expected to "age"; that is, when the beneficiary would come into ownership. So far, okay?

Now a dishonest trustee could skim fairly easily with fraudulent documents of payouts and padding his administrative fee if the trust terms are fluid enough. But, he'd be careful not to raise red flags for the trust officer, trust department, and auditors. It can be done, but he'd have to be savvy. A lot depends on the trust terms and what it leaves to the trustee's discretion. You could have the bank's trust officer as the cohort and mitigate a lot of the risk from that perspective.

Your scenario with the CEO stealing the MC's identity wouldn't work well, if at all, given the above circumstances. She could be in cahoots with the trustee/lawyer, but the illegalities would all be in his hands in a real world situation as, not being a signatory as named in the trust, she couldn't get to the funds directly.

This is probably more than you needed to know and I hope I haven't given you a headache.

Your best bet is to keep it simple as Ben mentioned and not try to do the identity theft part.

Awesome, thanks for the tips. I will keep it simple and eliminate the identity theft component. I like the idea of one of the bank officers working together with the CEO and the trustee; makes it more believable. Thanks again!

Ari Meermans · Jan 23, 2013

You're very welcome. Best of luck with your story.

ULTRAGOTHA · Jan 23, 2013

Or, alternatively, could the evil CO be skimming money off the company's profits *before* they go into the trust?

Legal help for storyline: What kind of Trust do I need?

Elusive Wanderer

Ari Meermans

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