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A North Dakota Guide to Creating and Administering a Trust - Thompson Law, PLLC

Thompson Law, PLLC

Estate & Business Planning Attorneys in Sioux Falls, South Dakota

Sioux Falls

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Grand Forks

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Estate Planning Attorneys Licensed in South Dakota, North Dakota, Minnesota, Iowa, and Nebraska

A North Dakota Guide to Creating and Administering a Trust

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Creating trust North Dakota

A Last Will and Testament traditionally serves as the first estate planning document executed when creating an estate plan. For many people, a trust is added to their estate plan that accommodates growth in their assets and/or family. While it is always best to work closely with an experienced trust attorney when adding a trust to your estate plan, it also helps to learn more about trusts and how they work. With that in mind, a Grand Forks attorney at Thompson Law has created a North Dakota guide to creating and administering a trust.

What Is a Trust?

A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Trustor.” The Trustor transfers property to a Trustee, appointed by the Trustor. The Trustee holds that property for the trust’s beneficiaries, also named by the Trustor. The overall job of a Trustee is to protect and invest trust assets and to administer the trust terms found in the trust agreement.

Creating Your North Dakota Trust

When creating a trust, one of the first things you must decide is whether you need a living trust or a testamentary trust. A living trust becomes active as soon as the trust agreement, the document that creates the trust, is signed and the trust is funded. A living trust can be revocable or irrevocable. A revocable trust can be modified, terminated, or revoked at any time, and for any reason or without providing a reason, by the Trustor while an irrevocable trust cannot. A testamentary trust is created using a provision in your Last Will and Testament directing the creation of the trust. As such, a testamentary trust doesn’t become active until after your death. There are also several specialized trusts that can help you accomplish specific estate planning goals, such as:

  • Asset protection trust. This is an irrevocable trust that is designed to protect your assets from claims from future creditors. The Trustor cannot be a beneficiary of the trust. The trust remains irrevocable for a specific number of years after which time the assets revert to the Trustor.
  • Constructive trust. A constructive trust is an implied trust. An implied trust is established by a court and is determined from certain facts and circumstances. The court may decide that, even though there was never a formal declaration of a trust, there was an intention on the part of the property owner that the property be used for a particular purpose or go to a particular person. While a person may take legal title to property, equitable considerations sometimes require that the equitable title of such property really belongs to someone else.
  • Special needs trust. This type of trust allows you to gift assets to a child with special needs without jeopardizing the child’s eligibility for much needed state and federal assistance programs such as Medicaid and/or SSI.
  • Charitable trust. Charitable trusts benefit organizations or the public in general. Charitable lead and charitable remainder trusts combine a charitable and non-charitable beneficiary into one trust.
  • Spendthrift trust. A spendthrift trust does not allow the beneficiary to sell or pledge away interests in the trust and protects trust assets from the beneficiaries’ creditors until the trust property is distributed out of the trust and given to the beneficiaries.
  • Totten trust. This is the name used for a type of trust created by a “Payable on Death (POD)” (or similar) beneficiary designation on an account. It is, in essence, a revocable trust in which the gift is not completed until the Trustor’s death or an unequivocal act reflecting the gift during the Trustor’s lifetime.

Choosing Your Trustee

It can be tempting to just name a spouse, family member, or close friend as your Trustee; however, consider the following tips before making a decision to help you make the right choice when appointing a Trustee:

  • Experience and skills. Ideally, your Trustee will have experience in managing investments and understanding trust administration laws.
  • Respecting your wishes. Choose someone who respects your wishes and is committed to fulfilling the trust’s purpose, even if they do not entirely agree with it.
  • Conflicts of interest. Your Trustee should have a neutral and unbiased approach to trust administration. With that in mind, make sure your Trustee does not have any conflicts of interest with the beneficiaries.
  • Conflict resolution skills. Choose a Trustee with conflict resolution skills who can handle potential disputes among beneficiaries to reduce the likelihood of costly litigation.
  • Willingness and ability to serve. Above all else, choose a Trustee who is willing and able to serve. Never assume that someone can or will serve as your Trustee.

What Is Involved in Trust Administration?

Because every trust agreement is unique, it is impossible to tell you all your duties and responsibilities involved in the administration of a trust; however, it helps to have a general idea of what happens so you can choose the right Trustee. Things that typically happen during trust administration include:

  • Following the trust terms. The terms of the trust guide the administration of the trust and the Trustee is required to abide by the terms of the trust, as created by the Trustor, unless a term is illegal, impossible, or unconscionable.
  • Manage and protect trust assets. The Trustee is responsible for protecting, managing, and growing trust assets.
  • Keep detailed records. Detailed records should always be kept by the Trustee. Not only does this protect the trust and the Trustee in the event of litigation, but the beneficiaries also have the right to review trust records.
  • Communicate routinely with beneficiaries. The Trustee is responsible for keeping beneficiaries informed of all trust business in a timely manner.
  • Defending the trust. The Trustee is responsible for defending the trust agreement in any litigation. If the conflict is among beneficiaries, a Trustee should act as a mediator and try and resolve the conflict.
  • Calculating and paying taxes. A trust is a separate legal entity, meaning taxes must be prepared and paid each year by the Trustee.
  • Making distributions. The Trustee distributes trust assets to the designated beneficiaries according to the terms of the trust. This may include discretionary distributions. Some Trustors give a Trustee only a token amount of discretion in case of an emergency while others provide a Trustee with the discretion to make major trust decisions.

Do You Have Questions about Creating or Administering a North Dakota Trust?

Please view one of our On-Demand webinars for a free consultation. If you have additional questions about creating or administering a North Dakota trust, contact a Grand Forks trust attorney at Thompson Law by calling 605-362-9100 to schedule an appointment.

Raymond German, Estate Planning Attorney
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