TRUSTS

Living Trusts and Testamentary Trusts

What is a Trust and Who is it For?

Trust Definition

A trust is a legal entity that holds onto your property for the benefit of a named party.

If you have any assets, take notice: what you earned over a lifetime can easily be reduced or wind up going to the wrong people if you don’t take steps to protect it.

Trusts provide legal protection for your assets and set terms for the way assets are to be held, gathered, and distributed in the future. The ability to set the precise terms for assets you own today is what distinguishes this from other estate planning tools.

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A trust can hold a variety of assets including money, stocks and bonds, real estate, or even a business. You (the trustor) give another party (the trustee) the right to hold title to property or assets for the benefit of a third party (the beneficiary). In many cases, you are both the trustor and trustee while you are alive. You may also choose to be the beneficiary during your lifetime as well.

A Few Key Benefits of Trusts:

You can avoid probate.
They can allow you to transfer assets without incurring huge tax burdens.
Gives you significant control over how your assets are used after you are gone.
Can protect assets from creditors.
They can even be used to help create or preserve eligibility for public funds when your assets or income might otherwise render you ineligible.

By setting up a trust, you reduce stress and emotional toll on loved ones and protect assets from misallocation, taxation, or misuse. It allows you to direct how your assets are used after you are gone. If you have any assets at all (a house, retirement savings, stocks, etc.), you will likely benefit from this estate planning tool.

Read our recent blog on this topic to see the top 10 ways trusts can help middle-class families.

How Do I Create A Trust?

Trust law is state-specific and complex.

Once you understand some of the basic mechanics you’ll be able to do a lot of the preparation legwork on your own, but you should seek professional guidance to draft or review your actual trust agreement.

Much of the beauty of a trust lies in its ability to carry out your wishes after you’re gone. By consulting a professional estate planner or elder law attorney you can be certain that the language of the trust agreement will actually fulfill your intent.

Identify the Components of the Trust

What people and property are involved?

A trust works by creating a new legal entity—the trust—and transferring legal ownership of personal assets to that entity for the benefit of another party. The first thing you’ll need to do is specify the components.

Grantor

You are the “grantor” (also called the “trustor” or “settlor”), the person creating the trust.

Trustee

You need a “trustee” to distribute the assets in accordance with the directions in the trust document. In many cases, you are both the trustor and trustee while you are alive and capable, but you will also name a “successor trustee” to act when you become disabled or deceased.

Beneficiaries

Who is the trust for, during your lifetime and after your death? You need to identify all beneficiaries---everyone you want to benefit from the trust. Beneficiaries are typically spouses, children, or other family members, but you can include anyone you choose.

Assets

Finally, you will need to identify what property and assets will be placed into the trust. It can hold a variety of assets including money, stocks and bonds, real property, a business, or even a life insurance policy.

What Are Your Goals?

Before drafting the actual document, consider your goals.

Provisions of a trust agreement usually contain two sets of instructions. The first set of instructions describes how the trust will operate during your lifetime and the second describes how it will be managed after your death. If a married couple set one up together (as they would in a “joint trust”), a third set of instructions may be included to describe how it will be handled on the death of the first spouse.

Drafting A Legal Trust Document

The trust agreement is the actual document that formalizes the trust. The agreement lists the assets, specifies the parties (trustees, successor trustees, and beneficiaries), and lays out the provisions to formalize your wishes. Provisions of a trust agreement usually contain two sets of instructions. The first set of instructions describes how the trust will operate during your lifetime and the second describes how it will be managed after your death. If a married couple set one up together (as they would in a “joint trust”), a third set of instructions may be included to describe how it will be handled on the death of the first spouse.

Executing and Funding the Trust

Once you have a completed trust agreement, you will need to follow state-specific requirements to make a valid trust. This may include signing the documents in front of witnesses or having the agreement notarized. Some states also require public registration. Finally, any property you want to be covered must actually be transferred into the trust. For any titled property, you need to have it retitled in the name of the trust by a deed, but for many things, you just need to execute an assignment of that property to the trust. You won’t place retirement accounts or annuities into the trust, so you need to make sure that the beneficiaries of those accounts are adjusted in order to operate in coordination with your trust.

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