It’s important to know how to set up a trust. Looking to secure your loved ones’ financial future by making your financial decisions today? A trust fund is a great way to achieve strength in your financial planning and to make sure that your assets are secured. Trust funds aren’t just for wealthy people – they’re for anyone interested in protecting their assets after they’ve gone. That’s important – and it’s easier than you might think: many kinds of trusts can be set up to achieve a variety of goals.
Trusts are financial tools that individuals use to preserve assets and to designate them for family, loved ones, charitable organizations, retirement funds, public works, and more. Perhaps the best way to get started in thinking about setting up a trust is to answer this question for yourself: Why is the trust needed? What are some of your valuable assets that might need to be protected or distributed after you’re gone?
A trust may be necessary to:
First, let’s go over some important terms related to trusts.
The grantor of a trust is the person who creates it. This person is also known as the trustor.
The trustee of a trust is the legal owner of a trust’s assets. That’s the person responsible for handling the assets, tax filings, and distribution according to the trust’s terms.
The beneficiary of a trust is the person or entity specified in the trust to receive the assets.
A revocable trust is one that can be modified or canceled by the party who creates it. People tend to use revocable trusts together with, or instead of, their wills. Any income earned by the trust’s assets goes to the grantor. When the grantor dies, the assets go to the beneficiaries of the trust. These trusts can help survivors shorten the lengthy probate process that is often associated with a will.
An irrevocable trust is one in which the terms cannot be revised or canceled after it has been signed without the beneficiary’s permission. The grantor yields control of the assets placed in the trust, and the assets are removed from that person’s estate. The grantor is then no longer responsible for paying taxes related to the trust fund’s assets. This can give an individual better protection from creditors, and it can reduce estate taxes.
Yes, individuals can set up trusts by themselves. With a DIY approach to setting up trust documents, like some sites offer online, no attorneys are involved in the process. It can be done; however, this is not always a good idea. Having a partner in estate planning can strengthen the process for you.
A trustee must be chosen who will be in charge of managing the trust assets and distributing them. Generally, the grantor is named as the initial trustee, with an alternate or successor trustee as a backup. It is also possible to choose a company, such as a bank or a trust company, to be the trustee. The trustor also must choose the beneficiary or beneficiaries. This is, most often, a spouse or family member.
Whether you go with an online DIY approach or choose to hire outside help, it is important to know how to set up a trust. Here are the basic steps involved in setting up a trust:
Different kinds of trusts are available for all different situations, depending on an individual’s financial interests and needs. We’re focusing on the most common, a revocable living trust. Many other kinds of trusts may be better suited to your interests. The trustor must decide whether to make it an individual or a shared trust. An individual trust contains property that only the grantor owns, and a shared trust contains property owned by the grantor or their spouse, or co-owned by the grantor and their spouse.
In a living trust, the grantor will want to include their most valuable property and items. This can include any variety of assets, including but not limited to:
Other assets that should not be included in the trust:
When creating a revocable living trust, choose someone trustworthy to assume the role of a successor trustee. This is the person who will manage the trust and its assets should the trustor pass away or become incapacitated or unable to execute the trust’s terms. This person should have integrity, objectivity, and good judgment.
The beneficiaries are those who will receive the assets designated by the trust. This is entirely up to the trustor’s discretion. However, most individuals transfer assets to a surviving spouse or to their children.
While this is something that can be achieved online, it is wise to consult with an outside source such as a financial advisor or another qualified professional. Websites like LegalZoom or TrustandWill can help guide individuals through the process if they decide to create a living trust by using an online service.
Once the Trust is prepared, it must be executed. This means that the trustor must sign it in front of a notary public and/or witnesses. This requirement varies by state, so make sure to research and understand your state’s laws. There is no need to file the trust with any court or agency; just keep it in a secure location with easy access.
The new title should reflect that you now own the property as trustee of the trust.
Living trusts should reflect any changes to an estate or financial situation. To keep things up to date, review the trust, its assets, and its terms at least once each year. As a rule, it should be officially updated every 3-5 years.
The more varied and sizable a person’s estate, the more likely that the person will need assistance in estate planning. Fortunately, Cope Corrales offers expert assistance with setting up trusts as part of their personalized overall wealth management plan. Contact them to confer with a financial professional who will help you build a secure estate plan for your loved ones.
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