A Brief Guide To Setting Up A Trust

Most people don’t like to think or talk about end-of-life matters. Although it may be uncomfortable to discuss and plan the ‘what ifs’ of not being around someday, estate planning is a necessary evil to protect your loved ones. 

One of the first steps toward sound estate planning is creating a trust fund. In this article, you’ll learn the basics of trust and how to set up one. Read on to learn more.

Understanding A Trust

The term ‘trust’ refers to the legal agreement allowing a third party, usually a lawyer, called a ‘trustee’ to hold and manage assets on behalf of a trust’s beneficiaries. A trust is set up by a grantor, and a trust fund is created to hold the various assets. The grantor is responsible for transferring property and assets to the trust fund and is the one to appoint the trustee, beneficiaries, and the term of the trust. 

In general, a trust can either be revocable or irrevocable. A revocable trust is the most common type and is known for its flexibility. It allows the grantor to make the changes at any time or even cancel a trust if it no longer meets their needs.  

An irrevocable trust, on the other hand, is more rigid. Once created, it’s not easy to make any changes or cancel the trust without the beneficiaries’ consent. One of the reasons why people choose an irrevocable trust is because the assets in it may not be subject to taxes when the grantor dies. 

There are also instances when a revocable trust becomes irrevocable. So, when can a revocable trust become irrevocable? Commonly, it occurs when a trust has only one beneficiary. When the grantor dies, the trust is automatically transformed from a revocable to an irrevocable trust. In addition, in a joint trust, grantors can also set the rules and provisions that can trigger irrevocability.

A trust can offer numerous benefits for your family. For one, it can protect your assets against the lengthy and costly probate process. It also helps protect your assets from creditors. In addition, a trust allows you to set specific rules and provisions. This way, you can control when, how, and why trust assets are distributed, ensuring that your assets are handled according to your wishes until the beneficiaries can receive them.  

4 Steps To Setting Up A Trust

Despite having some confusing technical aspects to trust, in reality, it’s quite easy to set up and create a trust fund. Here are the steps to set up a basic trust:

  • Set Your Goals

First, you need to consider why you’re creating a trust fund. By having a better understanding of your goals, you get a better idea of the assets and terms to include in your trust, ultimately streamlining the whole process. 

Do you want to make sure that each of your children receives equal assets? Do you prefer a close relative to receive your antique gold collections? Whatever they may be, setting your goals can help guide primary decisions you’ll need to make when creating the terms of the trust.  

  • Determine The Terms

Once you know your goals, you can now decide on the terms of the trust. Typically, this includes: 

  • Choosing The Trustee: As the one who’ll manage your trust and the distribution of your assets, it’s crucial to choose a trustee you can trust and fulfill your wishes. Generally, you can appoint a family member or legal representative to be your trustee.
  • Deciding Distributions: If you have several beneficiaries, you need to decide how you’ll distribute your assets among them. Make a list of the assets you plan to transfer to a trust fund and determine which beneficiary should receive each asset. 
  • Setting Provisions: Depending on your goals, you need to include certain provisions and instructions on how assets are distributed or when can your beneficiaries receive them.

As you choose your trustee and beneficiaries and set up provisions, keep your goals in mind to ensure you set your assets and terms according to your goals.

  • Write The Trust Document

Now that you have the terms of your trust, it’s time to make it legally binding by creating the trust paperwork. You simply need to outline everything from the appointment of a trustee to specific provisions in the distribution of your assets. 

Once you have a draft, you can execute them according to the laws in your area. In most states, you simply need to sign the trust documents in the presence of two chosen witnesses, who are also required to sign. Depending on your local area’s requirements, you may also need to have it notarized and registered. 

  • Fund The Trust

Once the trust documents are finalized, you can now fund your trust. This is crucial since your trust can’t function according to your wishes until you fund it with assets. Depending on the type of trust you have, the assets you can include in your trust fund are:

  • Real estate property
  • Life insurance policies
  • Bank and brokerage accounts
  • Digital and non-cash assets
  • Any personal and valuable items

To transfer assets, you’ll need to contact the institutions managing the specific type of asset. For instance, if you want to transfer your bank account to a trust fund, you need to contact your bank to start the process. 

Takeaway

You often think about how to provide for your loved ones. But don’t just think for today. Secure your family’s financial future by setting up a trust fund that will provide for them once you pass away or become incapacitated. And it doesn’t have to be daunting. By following the above steps and tips, you can quickly set up a trust fund that will protect your assets and ensure your beneficiaries can thrive even after you’re gone.

Steven Millstein
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