Foundations of Trusts
KNOWLEDGE EXPECTED OF: CFP® Professionals Only
- Define a trust.
- Define parties to a trust.
- Explain the role of each party to a trust.
- Identify how a trust is viewed in relation to the parties of the trust for legal purposes.
- Explain purposes for establishing a trust, such as:
- Establish conditions for inheritance or access to testator’s assets
- Alternative to a will for estate planning purposes
- Management of property in the event of incapacity
- Protection of property from the creditors of the settlor
- Protection of property from the creditors of beneficiaries of the trust
- Protection of property against claims by disappointed heirs
- Protection of the beneficiary from themselves (spendthrifts)
- Potential deferral of tax on disposition of property
- Potential reduction in probate costs/fees
- Providing for subsequent generations
- Explain risks in establishing a trust, such as:
- Potential loss of control of property
- Potential tax on deemed dispositions of assets
- Potential higher taxes
- Difficult to amend a trust as compared to a will
- Define types of trusts that may be established through the operation of law, such as:
- Resulting trust
- Constructive trust
- Explain how the types of trusts established under the operation of law may come in to existence.
- Define the status of a trust.
- Explain the impact of establishing a trust.
- Explain entitlements that a beneficiary may have with respect to assets held in trust, such as:
- Absolute income interest
- Contingent income interest
- Capital interest
- Life interest
- Remainder interest
- Fixed interest
- Discretionary interest
- Vested and contingent interest
- Explain the certainties that must be present for a trust to be created.
- Certainty of intention
- Certainty of subject matter
- Certainty of objects
- Identify the methods in which a trust may be established, such as:
- By statute
- Through a will
- Through the operation of law
- Through a legal judgment
- Identify who may be a trustee.
- Explain advantages and disadvantages of using a corporate trustee.
- Explain the factors to consider when contemplating the appointment of a corporate trustee, such as:
- Location of trust and beneficiaries
- Complexity of trust
- Time required to manage trust
- Need for objectivity or opportunity for disputes regarding trust
Glossary of Verbs (mouse over to see definition)
To state exactly the meaning of
To be aware of / to recognize and correctly name / to locate an appropriate resource
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
To note the similarities and differences between two or more things
To determine an approximate value for
To find the value using mathematics
To change from one form or purpose to another
To reach a conclusion or make a judgement through careful study
To give the meaning of / to construe or understand / to translate orally