A well-rounded and comprehensive estate plan will incorporate a wide variety of estate planning tools and strategies. Among the most common of those tools is a trust, due in large part to the fact that trusts can help achieve so many different estate planning goals. Working with an experienced estate planning attorney is the best way to ensure that the trust you create is successful and error-free. It may, however, be beneficial for you to understand the most common steps involved in creating a trust.
Creating a Trust
- Step One — Define your trust purpose. Although it may seem like an obvious step, it is important to understand that defining your trust purpose with as much specificity as possible will greatly increase the success of your trust. Because trusts have evolved to the point where there is now a specialized trust to help meet almost any estate planning goal, narrowing down your trust purpose and goals is a critical first step. Every trust must have a trust purpose that can ultimately be referred to by the Trustee, or even a judge if necessary, when making critical decisions relating to the trust. Is your trust purpose to plan for incapacity? Protect assets? Guard your child’s inheritance or gift to charity? All of these goals, and many more, are possible with a trust.
- Step Two — Identify your beneficiaries. If you are creating a trust specifically to gift assets to loved ones identifying your beneficiaries is simple; however, deciding on the beneficiaries can be more complicated. For example, if you are creating a charitable trust, you may spend a significant amount of time deciding on your beneficiaries. You may also need to do some research to decide exactly who your beneficiaries will be.
- Step Three – Figure out which type of trust is best for your needs. All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust, activates during the Settlor’s lifetime. Living trusts can be sub-divided into revocable and irrevocable living trusts. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time and for any reason. An irrevocable living trust, on the other hand, cannot be modified or revoked by the Settlor at any time nor for any reason once active. Testamentary trusts are always revocable because the Will that triggers activation is always revocable until the Testator’s death. To a large extent, your trust purpose, determined in step one, will dictate which type of trust you need to create.
- Step Four — Select your Trustee. Given the importance of the duties and responsibilities, your Trustee will have, choosing your Trustee should be done with care. Your Trustee is responsible for managing and investing trust assets as well as administering the trust. The duties and responsibilities of a Trustee are numerous and diverse, requiring you to spend a considerable amount of time deciding who to appoint as your Trustee. Ideally, your Trustee should have a legal and/or financial background to ensure that he/she is capable of administering the trust successfully. Depending on the size and complexity of your trust, choosing a professional Trustee may be your best option.
- Step Five — Draft the trust agreement. Your estate planning attorney will actually draft the trust; however, as the Settlor of the trust, you will decide on the terms to be used to administer the trust. You will use those terms to decide when assets can be distributed, how assets should be invested, and how much discretion you want your Trustee to have, among other things. As the Settlor, you can include any terms you wish as long as they are not illegal, impossible, or unconscionable.
- Step Six – Fund your trust. Every trust must be funded. You can use almost any type of assets to fund your trust; however, the trust purpose and type of trust created may dictate the type of assets you use. Then you must actually convert the assets into the name of the trust. This can be as simple as transferring cash into the trust or as complex as re-titling real property into the name of the trust.
Contact Trust Attorneys
For additional information, please download our FREE estate planning worksheet. If you have additional questions or concerns about creating a trust, contact the experienced trust attorneys at Nash, Nash, Bean & Ford, LLP by calling 309-944-2188 to schedule your appointment today.