How to Set Up a Trust

Living trusts can be an important part of your estate planning process, and they are simple to set-up.

What is a Trust?

A trust is a way to hold and manage property, in which the individual creating the trust (known as the grantor) transfers property to a trustee, that manages the property for the benefit of other individuals (known as beneficiaries). A trust is utilized as an element of an extensive estate plan, alongside with other documentation like a will, power of attorney, and/or healthcare power of attorney. For a better understanding of trusts, it helps to know a couple of primary terms:

• Living trust – Is a trust that is set-up in which the grantor is still living (also called an inter vivos trust).
• Testamentary trust – Is a trust set-up by the grantor’s last will and testament.
• Revocable trust – Is a living trust the grantor may alter or terminate at any time.
• Irrevocable trust – Is a living trust that the grantor cannot alter or terminate.
• Trust agreement – Is legal documentation that sets up a trust. It is occasionally known as a Declaration of Trust; nevertheless, the title on the document could simply read “The Polach Family Trust,” or something likewise. It establishes the names of the grantor, the trustee, and the beneficiaries. It additionally declares how the trustee should allocate the income from trust assets whereas the grantor is alive, and the way the assets or income needs to be allocated to the beneficiaries following the grantor’s passing.

The Reason to Set Up a Trust

Trusts are set up to achieve specific benefits that cannot be achieved using a will. These can comprise of:

• Bypassing probate
• Avoiding or putting off taxes
• Safeguarding your assets from creditors including you and your beneficiaries
• Retaining privacy concerning your assets
• Exercising greater management over your assets than could be achieved using a conventional will
• Enabling you to qualify for specific benefits, like Medicaid for long term care
• Offering financial support for an individual with a disability, at the same time enabling the individual to receive government disability benefits

When you have specific objectives in mind, consider the process of establishing trust to achieve them.

Determining Your Need for a Will or Living Trust

Wills and living trusts serve distinct purposes, and your individual circumstances will determine which one you require. In some cases, a will might suffice, but if you find that a living trust is necessary, you’ll also need a will. It’s crucial to make an informed choice that suits your needs.

Steps to Establishing a Trust

Creating a trust involves a two-step procedure:

1. Drafting the Trust Agreement

The grantor creates a trust agreement, a legally binding document that identifies the grantor, the trustee, and the beneficiaries, while also outlining how the trust’s assets will be managed and distributed. During this phase, you’ll decide on your chosen beneficiaries, specify how you want the trust’s income and assets allocated to them, and select the trustee or trustees.

2. Funding the Trust

The second phase, known as funding the trust, requires the grantor to transfer assets into the trust. Without this funding, the trust agreement remains ineffective. The method of asset transfer depends on the type of property:

• Real Estate: For real estate, the grantor employs a deed to transfer the property title into the trust.
• Assets with Title Documentation: Assets such as vehicles, boats, recreational vehicles, airplanes, mobile homes, stocks, and bonds often come with title documentation that can be transferred to the trust.
• Other Personal Property: Non-titled private property can be transferred by documenting the property details on a piece of paper (e.g., ‘all of my household goods’ or ‘my stamp collection’) and noting the intention to transfer it to the trust.