Using a trust agreement is an excellent estate planning tool for many families. It allows you to control and protect your estate during your lifetime and after you’re gone. It also creates many questions about what happens when property is owned by a trust.
When you create a living trust, it’s important to know who is responsible for the management of the trust and who has access to the trust. The person who creates a trust agreement is called the grantor. They have the authority to fund a trust with property, transfer assets, and dictate the terms of the trust. During their lifetime, they are also typically the initial trustee of the trust.
A trustee is a person named to manage the assets or the person who is in control of the property. Upon the death of the grantor, a successor trustee will continue to oversee those assets under the control and direction of the instructions initially laid out in the agreement.
One thing to consider is how different types of trust agreements may change who has control of the assets in your trust, and what can be done with them. Also, how this changes during a grantor’s lifetime versus after death. Unlike probate, a trust can continue to manage and control assets held in the trust long after the grantor is gone.
Who Is the Grantor of a Trust?
The grantor of a trust is the person who creates it and puts property into it. Depending on the document or the state, you may also see the grantor called the “settlor” or the “trustor.” All three terms mean the same thing. Virginia’s trust statutes use “settlor.”
The grantor decides almost everything about how the trust works. They choose what goes into it, who manages it, who benefits from it, and when and how the beneficiaries receive property. In a revocable living trust, the grantor often fills all three roles at the start: grantor, initial trustee, and lifetime beneficiary. A married couple can also create a joint trust together, and each spouse is considered a grantor. Under Virginia law, each spouse generally controls the portion of the trust attributable to the property they contributed.
The grantor’s role matters because it determines how much control remains after the trust is signed. With a revocable trust, the grantor keeps broad authority for their lifetime. With an irrevocable trust, the grantor gives up most of that authority once the trust is funded.
The Person Who Creates the Trust and Has the Legal Capacity to Transfer Property Held Under the Trust
Not everyone can create a valid trust. Under Va. Code § 64.2-720, a trust exists only if the settlor has the capacity to create it and shows a clear intention to do so. For a revocable trust, Va. Code § 64.2-750 sets the capacity standard. It is the same capacity required to make a will. That standard applies to creating the trust, amending it, revoking it, and adding property to it.
In practical terms, the grantor must understand what property they own and who their family members are. They must also understand what the trust document does with that property. If the grantor lacks this capacity when they sign, the trust can be challenged later. A trust is also void to the extent it was created through fraud, duress, or undue influence.
Capacity also matters after the trust is signed. As long as the grantor has capacity, they can transfer assets into the trust and direct what happens to them. If they become incapacitated, someone else must act. An agent under a durable power of attorney can create a trust or exercise the grantor’s powers over a revocable trust, but only when the power of attorney expressly authorizes it and the trust terms don’t prohibit it. This is one reason incapacity planning and trust planning should be done together.
Who Controls a Trust?
The trustee controls a trust. The trustee is the person or institution legally responsible for managing trust property according to the trust’s terms. Who that trustee is, and whose instructions they follow, depends on the type of trust and the grantor’s circumstances.
During the grantor’s lifetime, a revocable trust is effectively controlled by the grantor. Under Va. Code § 64.2-752, while a trust is revocable, the trustee’s duties are owed only to the settlor. The beneficiaries’ rights are subject to the settlor’s control. The trustee may even follow a settlor’s direction that conflicts with the written terms of the trust. Virginia law also lets the settlor revoke or amend a trust unless the document expressly says it is irrevocable. This rule applies to trusts created on or after July 1, 2006.
Control shifts when the grantor becomes incapacitated or dies. At that point, the successor trustee named in the document takes over. The successor trustee must follow the trust’s instructions and act in the best interests of the beneficiaries.
In an irrevocable trust, the trustee is in control from the start. That trustee may or may not be the grantor, and must follow the trust terms as written. The grantor generally cannot take property back or change the rules without following the limited modification procedures allowed under Virginia law.
Who Owns The Property in a Revocable Trust?
Generally speaking, the grantor, or the person who created the trust, is the one who controls the property in a revocable living trust. As the name implies, this type of agreement can be changed at any time by the person who created it.
A living trust is a revocable trust. They can add or remove assets and even revoke or terminate the trust at any time. This means that as long as they are alive, they have complete control over their estate plan and what happens with their assets and property after death.
When setting up a living trust, one must decide what property or assets should be used to fund the trust. This can include real property, bank accounts, insurance proceeds, and even family heirlooms. All these items should be discussed with your estate planning attorney prior to executing any agreement. Different types of property require different steps to fund or transfer.
Once transferred, the items are re-titled to reflect ownership of the trust agreement. For example, real property will be re-titled to reflect the name of the trust, not an individual. And while the ownership has changed, the person who created the trust still has the authority to dictate what happens. They can spend money from the trust, buy or sell assets, move it in or out of trust ownership, or use and benefit from anything held in trust during their lifetime. This changes if the grantor becomes incapacitated or dies.
When this happens, a living trust or revocable trust becomes irrevocable. Upon your death, the person appointed as successor trustee now manages and controls trust assets on behalf of its beneficiaries. And while they have a duty to tend to the trust property and assets being held, they don’t have the authority to act as they choose. Now they need to manage or distribute the property according to the instructions in the agreement. This often means distributing the property to beneficiaries.
If a House Is in a Trust, Who Owns the House?
If a house is in a trust, the trust holds legal title to it once it’s re-titled. The grantor, however, can still live in, sell, or refinance the house exactly as before, since they retain full use and benefit of trust property as long as the trust is revocable. That changes once the grantor dies or becomes incapacitated, when the successor trustee takes over legal responsibility for the house on behalf of the beneficiaries.
Who Controls Property in an Irrevocable Trust?
In an irrevocable trust, the property is handled differently. In this type of agreement, a trust cannot be revoked or terminated once funded until it has fulfilled its purpose. Property or assets cannot be removed unless distributed to a beneficiary as directed by the agreement.
Depending on the purpose, the person who creates the agreement may or may not be named the trustee. Regardless, a trustee is legally obligated to manage and distribute the assets in accordance with the trust’s provisions.
That doesn’t mean the person who created the trust can’t still benefit from it. For example, if real estate is transferred into an irrevocable trust, a grantor may continue to live on and use that property as long as it’s allowed for under the terms of the agreement. The biggest difference is a grantor may not revoke the trust or remove assets titled in the name of the trust once they have been transferred.
How Does a Trustee Manage Trust Assets?
When a person is appointed as trustee, they have what is called “Fiduciary Duties.” This means they have legal obligations and rules to follow when managing a trust. They are responsible to the grantor and beneficiaries for managing trust property and assets.
Typically if you created the trust, you are also the trustee until you are unable to manage the assets or the time of your death. Unlike a will, trust assets do not go through probate. Instead, the successor trustee of your trust takes over the responsibility outside the probate court process.
The trustee must adhere to the trust agreement when administering and distributing assets and comply with all relevant laws. They must also ensure that all beneficiaries receive their share of assets outlined in the agreement. A revocable living trust is controlled by its creator or grantor while they are alive, allowing them to alter or cancel it at any time. Upon their death, however, the designated successor trustee takes over management of any property held within it according to its terms. The successor trustee is responsible for ensuring assets pass or there is a transfer of ownership to the intended beneficiary.
An irrevocable trust works a bit differently. Once created, it cannot be changed. Once a grantor transfers ownership, the assets must remain in trust. In this case, an appointed trustee manages the trust’s assets, such as real estate and personal property, on behalf of the named beneficiaries. While named beneficiaries have a legal interest in the property, they do not have a legal right to possess the asset or property until it is distributed.
Does a Beneficiary have Control of Trust Property?
While a beneficiary to a trust agreement does have some rights, they do not control the property or the assets. They also do not have any say over which property or assets are used to fund a trust. A beneficiary does not have a duty or responsibility like a successor trustee.
However, they can ensure a successor trustee is following the rules and properly managing the property being controlled and managed by the trust agreement. A trust allows a trustee the authority to manage assets on behalf of a beneficiary or transfer ownership, as directed by the trust agreement.
Is a Trust the Right Choice for my Estate Plan?
Start Planning Today!
(703) 202-0394
