knowledge topics
Foundations of Trusts
KNOWLEDGE EXPECTED OF: CFP® Professionals Only
- Define a trust.
- Define parties to a trust.
- Settlor
- Trustee
- Beneficiary
- 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
- Privacy/confidentiality
- Explain risks in establishing a trust, such as:
- Potential loss of control of property
- Cost
- Complexity
- 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.
- Revocable
- Irrevocable
- Explain the impact of establishing a trust.
- Revocable
- Irrevocable
- 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:
- Expressly
- 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:
- Settlor
- Trustee
- Beneficiary
- Location of trust and beneficiaries
- Complexity of trust
- Time required to manage trust
- Expertise
- Need for objectivity or opportunity for disputes regarding trust
Glossary of Verbs (mouse over to see definition)
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Define
To state exactly the meaning of
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Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
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Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
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Compare
To note the similarities and differences between two or more things
-
Estimate
To determine an approximate value for
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Calculate
To find the value using mathematics
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Convert
To change from one form or purpose to another
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Evaluate
To reach a conclusion or make a judgement through careful study
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Interpret
To give the meaning of / to construe or understand / to translate orally
Read more about the Taxonomy used in the FP-BoK
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