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Setting Up a Trust

A trust is a legal structure that contains a set of instructions that includes exactly how and when to pass assets to your beneficiaries. There are dozens of trust structures available, and only after careful consideration should you determine the type of trust that works best for you.

Contrary to popular belief, setting up a trust isn’t only for the super-rich, though if you have considerable assets, a trust might be a good move. Specifically, a revocable trust, also called a revocable living trust, is a document that can be modified by the person who creates it at any time while he or she is still alive. 

In order to make sure your trust is exactly what you want, it’s important to choose the right service for the right reasons. Here’s how to do that.

Main Takeaways: Setting Up a Trust

  • Seriously consider why you want to set up a trust. This practice is not only for the extremely wealthy. Most people underestimate how many assets they have and the benefit of passing them down to others.
  • Decide your goals when setting up your trust. Based on the financial supplement you want to provide your family in the future, you can set up your trust to reflect those goals.
  • Choose a service and a successor trustee. Take a look at your choices for using a service or setting up your trust through a DIY method. We explore your options below.

Reasons to Consider a Trust

There are some excellent reasons to consider creating a trust, not only to make it easier for your loved ones when you die (though that is the primary reason a trust is an A+ idea!)

Preserve and Pass on Wealth Quietly

You may have already debated the pros and cons between a will versus a trust, and one factor that puts trusts squarely in the pro column is that it’s one of the best ways to make sure you pass on your assets more smoothly and privately. 

When you transfer your assets to your beneficiaries through a will, your estate is settled through a procedure known as probate, which is conducted in state courts. Probate proceedings can incur delays, probate fees can be quite costly and they are also public record.

In other words, anyone curious enough could look up any information they wanted to if you opt for a will. 

Control Over Distribution of Your Assets

You can put conditions on how and when your assets are distributed before and after you die. If you become incapacitated, a living trust provides for a successor trustee to take over the control of the trust. The successor trustee takes care to invest the trust funds and heeds the instructions you’ve included in the trust. 

Can Avoid Estate Taxes

Both a living trust and will, if properly drafted, can be used to reduce or eliminate estate taxes under certain circumstances, and especially for married couples.

In Most Cases, it’s Revocable

A will only becomes effective upon your death, but a living trust goes into effect during your lifetime and in most instances is revocable, which means you can change, amend it or terminate it.

Step 1: Get Documents in Order

Get all of the titles and deeds of property, stock certificates and life insurance policies to transfer everything into the trust. In other words, a trust is only valid when you put assets into it. Gather them now and have them ready so the process can go more smoothly and quickly.

In addition, consider ahead of time who will be the sole grantor, your beneficiaries, successor trustee and who will manage property for your minority children (if applicable).

Step 2: Set Your Goals 

Setting your goals is an important next step in getting your trust set up. What do you want to accomplish with your trust? Help a child with his or her education? Accomplish charitable giving? Give everything to your beneficiaries? Leave most of your assets for your grandchildren? This part of the process takes some considerable thinking: you’ll need to consider your dreams and wishes for your assets. 

Also, determine the type of trust you’d like to consider, though these types of recommendations are best provided by legal counsel.

Spendthrift Trust 

This type of trust is protected against the creditors of a beneficiary. In other words, a spendthrift trust protects trust property from an irresponsible beneficiary and his or her creditors. It’s a type of property control trust that limits the beneficiary’s access to trust principal.

Third-Party Special Needs Trust

Special needs trusts are usually specialized spendthrift trusts created for a beneficiary who suffers from a disability. It may include instructions about the beneficiary’s public benefits, like Supplemental Security Income or Medicaid.

Bypass Trust

A married couple can take full advantage of the federal estate tax exemption amount, so that they can pass up to twice that amount to their heirs on the second death.

In other words, on the first spouse’s death, a portion of the couple’s assets transfers to the bypass trust irrevocably, with some limitations on the use of the money during the rest of the surviving spouse’s life.

Revocable Trust or Revocable Living Trust

Any trust that can be revoked (usually by the person who established the trust) is called a revocable trust or a revocable living trust. If the only person who can revoke the trust has died (or become permanently incapacitated) then the trust becomes irrevocable.

Irrevocable Trust 

The opposite of a revocable trust is an irrevocable trust. In this case, no one has the power to revoke the trust, even if the assets held by the trust are spent or distributed, don’t exist anymore and even though it was originally irrevocable.

Grantor Trust

A grantor trust is a trust that involves the elements of control listed in the federal income tax code. It includes the power to revoke the trust, the right to receive the trust’s income and/or principal and the role of trustee. Grantor trust rules are very complicated and often need a lawyer’s interpretation to be sure you are aware of how they work.

Step 3: Choose a Service

What type of service will you entrust with your money? A lawyer or online service such as Trust & Will? Or will you try to tackle this on your own in true DIY fashion?

Obviously, the biggest difference will be the cost, but you could run into more problems with a DIY version over a trust that’s crafted by a lawyer. If you do decide to do it yourself, it’s essential that you get a book about drawing up your own trust and follow it closely. 

  • You’ll need to include your own name (as the grantor or trustee) and who will manage the trust (you). 
  • The name of who will take over as trustee and distribute property in the trust when you die or becomes incapacitated (this person is called the successor trustee). Most people choose their spouse, grownup child or friend.
  • Your beneficiaries, or people who will receive the assets in your trust.
  • People’s names who will manage the property on behalf of young beneficiaries.

Step 4: Assess Your Assets

This step involves figuring out what you own and what you will transfer into your living trust. Your assets could include real estate property, including any homes you own (including second homes or rental property). Include cash accounts in your round-up, and be sure to include checking and savings accounts.

Next, include personal property such as boats, vehicles, furniture, and other collectibles. 

There are some tricky considerations with retirement accounts, pensions, and life insurance policies. Look into the tax consequences that could be imposed on you with these items; ask a tax adviser before you stick these types of accounts (and some cannot even be put in there) into your trust.

Step 5: Choose a Successor Trustee

Your trust must name someone to serve as your successor trustee. You can name a trust beneficiary — that is, someone who will receive trust property after your death. Once you decide who it will be, let the person you’ve chosen know ahead of time so you make sure he or she is willing to be responsible for it.

Step 6: Prepare the Trust Document

Work with the service you’ve chosen to create your trust document. If you’re not sure which service you prefer, consider Trust & Will for a trust beginning at $399.

You can create a trust for your spouse for $100 more. All documents have been designed and vetted by attorneys with decades of estate planning experience. 

If you are dissatisfied with your completed documents, contact Trust & Will within 30 days of your purchase for a full refund, no strings attached.

Step 7: Transfer Title of Property to Yourself as Trustee

Transferring the title of the property to yourself as a trustee is an important step that often is not executed. When you officially make your trust effective, you must hold title to trust property in your name as trustee. 

Let’s say you want to hold real estate in your trust. You’ll need to prepare and sign a new deed that transfers your real estate trust in your name and also includes the date.

Set Up a Trust for Your Future

Think of everything you own, whether it’s real estate, retirement accounts, brokerage accounts, personal property and more — it might add up to more than you think. What are you planning to leave to each and every one of your beneficiaries, and how will you execute it in the most thoughtful way possible? 

After all, setting up a trust can be a saving grace for your family when you pass away. Once your family is confronted with the reality of your death, it’s obviously a very emotional time.

When you have all of your assets figured out and your wishes ready to act upon, a trust takes some of the burden away. It’s an extremely well-intentioned way of thinking ahead and considering the legacy you’d like to leave behind.

Are you interested in learning more about organizing your assets? Check out some of Benzinga’s insurance and investing guides.

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