Tag: trust

How to Set Up a Trust

How to set up a trust

A trust is one of the most effective tools for creating a successful financial plan. They can reduce the overall tax burden, provide for your loved ones, and give you some control to ensure your wishes are carried out after you’re gone. However, trusts are also complicated legal arrangements that can be confusing, leaving some people wondering where to start.

Here we’ll review the basics and best practices of setting up a trust. We should say at the outset that we do not recommend attempting to create a trust on your own and strongly advise you to consult with an attorney to ensure your trust meets all legal requirements.

Trust Basics

A trust is a legal arrangement whereby one person holds property for the benefit of another. What does that mean? It’s easier to understand by thinking of the three principal parties to a trust: the settlor, the trustee, and the beneficiary.

The settlor (also called a grantor or trustor) is the person who creates the trust. They provide the property which will fund the trust, decide who will benefit from the arrangement, and define the rules by which the trust operates.

The beneficiary is the person who benefits from the arrangement. Put another way, the beneficiary is the person (or persons) whom the settlor wishes to help by creating the trust.

The trustee is the person who is responsible for managing the trust property and ensuring the terms of the trust are carried out.

Here’s an example: A single parent who owns an apartment building has a will that states that if they die before their child reaches age 25, the title to the apartment building will be transferred to a trust to be managed by their attorney. Any income generated by the building will be used to pay for the child’s care until they are 18, and then the child will receive monthly cash payments from the income until they are 25, at which point they take full ownership of the building. In the meantime, the attorney is responsible for maintaining the building, paying property taxes, etc., and is entitled to compensation for their efforts. In this scenario, the parent is the settlor, the child is the beneficiary, and the attorney is the trustee.

Setting Up the Trust

If you’re interested in creating a trust, follow these basic steps.

1. Define Your Goals

Trusts are a versatile tool that can be used for many purposes. You may wish to establish a charitable legacy, provide care for family members, or reduce the tax burden on your estate. Knowing your goals will help you make the best decisions for your trust.

2. Identify the Assets You Will Place in the Trust

Knowing your goals, consider the property at your disposal and how it can be used to fund the trust.

3. Identify Your Beneficiaries

Be clear on who you want to benefit from your trust. It can be anyone, from your spouse or children to a charitable foundation.

4. Decide Your Trustee

This is one of the most important decisions you’ll make. A trustee can be a family member, an attorney, or even an institution such as a bank. It should be someone you trust, but the trustee should also be someone who can handle financial matters, such as paying taxes and investing money. It is common for the attorney who drafted the trust documents to serve as trustee, but additional safeguards should be in place to ensure the attorney has not abused their position for their own gain.

5. Have an Attorney Draft the Documents

Trusts shouldn’t be handled on a DIY basis, as many rules must be followed. If done improperly, the result may be that your wishes are not followed after you pass away. Meet with a lawyer with experience in trusts, tell them what you want, and they should be capable of creating the necessary documents.  

Getting Started

If you know what you want or need help exploring your options for creating a trust, the next step is to meet with an attorney. Our estate-planning experts have years of experience drafting trusts, wills, and other legal instruments that will accomplish your goals and survive legal scrutiny if challenged.

To schedule your initial consultation, contact our office today.

Do You Need Both a Will and Trust?

Wills and Trusts

When it comes to estate planning, every case is as diverse and unique as the people involved. Luckily, modern estate planning offers a wide array of tools to accommodate virtually anybody’s goals. What is right for you will largely depend on the nature of your estate and those who you want to benefit from it.

Many clients come to us feeling torn between setting up a trust or relying solely on a will, but there is no need to choose between one or the other; a single estate planning can, and often does, include both a will and a trust (or multiple trusts).

Creating a Will

As most people know, a will is a written document that communicates how a person wants their property distributed after they pass away. It can be as simple or complex as the testator (the person who makes the will) wants it to be.

If a person dies without a will—“intestate” is the legal term for this—the state laws of intestacy provide a generic hierarchy for transferring their property. For example, if the person had a spouse, all the property goes to him or her; if not, it will be distributed equally among their children; if there are no children, then to the decedent’s parents, etc.

Of course, many people want a more custom-tailored estate plan than is offered by the laws of intestacy. For example, they may wish to leave specific property to specific people or leave property to a spouse for the rest of their life (called a life estate) before passing it on to their children. A will can accomplish all this and more when drafted by an experienced attorney. It can even be used to create a trust.

Different Types of Trusts

A trust is a legal arrangement whereby property is held on behalf of and for the benefit of another. Here’s an example: a person owns an apartment building; she dies, and by the terms of her will, if she dies before her child reaches the age of 21, the apartment building will be held in a trust until that time. The trust is its own legal entity, and all of the assets are managed by a trustee. The trustee has a legal obligation to maintain the building, pay taxes, etc. (paid for by the trust); depending on the terms of the trust, the monthly rental income may be paid out to the child, invested in a college fund, or whatever else the parent wished.

There are quite a few types of trusts, but they are separated into two main categories: revocable and irrevocable trusts. As the names imply, a revocable trust can be revoked by the trustor after its creation, while an irrevocable trust cannot. A trust established by a will is by definition an irrevocable trust, as the trustor is no longer around to revoke it. As to so-called “living trusts,” there are many reasons a person might create one or choose one type over another. For example, they may be looking to minimize their tax exposure or ensure that a child with diminished capabilities is cared for.

Identifying the right kind of trust and drafting a document that withstands legal scrutiny can be a complicated process. Therefore, you should consult an estate planning attorney.

Finding the Right Balance

With so many options available, estate planning involves choosing the right combination to suit your needs. The best way to do this is to sit down with an attorney who understands this area of law, identify your goals, and craft a plan accordingly. Take the first step today and contact our office to schedule a consultation.