A trust is a legal arrangement created to manage assets. In the document, trustees are named, along with the terms of the trust and beneficiaries. This is often made by parents who have assets to distribute to children who are still minors and legally incapacitated to enter into legal transactions. This serves as a precaution should any parent or legal guardian suddenly die.
Setting up a trust isn’t something many people get to think of right away. However, when you consider the merits of having one, having a trust is one of the best ways to protect your assets and the interests of your heirs. With a trust, you may be able to avoid probate that, in effect, may lengthen the time it takes for your beneficiaries to receive assets and properties.
With this in mind, here’s a five-step guide to setting up a trust, along with this full article to supplement.
1. Understand What You Can and Can’t Use to Fund Your Trust Document
One of the basic types of trust is what’s known as a revocable living trust. This type of trust allows you to create a trust that you can revoke or amend at any time during your lifetime.
Upon creating a revocable living trust, it’s a must to name your representative, also known as the ‘successor trustee.’ This is the person responsible for managing your trust suppose you become incapacitated or die.
However, before creating one, you should understand what you can and can’t use to fund this trust. Along that line, assets that shouldn’t be used to fund your living trust are:
Qualified retirement accounts
Health savings accounts
Medical savings accounts
Meanwhile, assets that can be used to fund a trust are:
Bank and other cash accounts
Corporate stocks or bonds
Non-retirement investment accounts
Tangible investment assets, like gold bullion and silver coins
2. Draft the Trust Document
Second, drafting the trust document is something you’ll have to do with the help of your lawyer. It's not one you can do by yourself if you want to avoid potentially harmful effects on the success and accuracy of your trust.
Typically, a trust document will include all the assets you have at present and all the beneficiaries associated with the trust. This document should also include instructions that name the trustees and how the assets should be managed.
3. Sign and Notarize the Trust Document
Once you’ve successfully drafted your trust document, you have to know that some states may have laws that state that no trust document will ever be valid without first signing it and having it notarized. Hence, while you’re drafting the document with your lawyer, don’t forget to have it signed and notarized by him, too.
Even when notarizing your trust document may not be something required where you’re from, it’s still an extra step of protection. Notarizing your trusts can prevent fraud. Moreover, it helps confirm the validity of the trust, so it won’t end up being questioned even after the grantor’s death.
4. Specify the Purpose of Your Trust
Another reason you have to be very detailed and thorough in creating your trust document is that the purpose has to be specified, too. Many parents create trust funds and trust documents for securing their child’s college education. Others also use it as a tool to pass down assets and inheritance. It's up to you to specifically indicate what the trust you’re creating is for.
For instance, is your trust document for the benefit of just one child or all of your children? If you want specific assets to go to specific beneficiaries, you have to note this on your trust.
5. Consider Creating an Irrevocable Trust
Revocable trusts have been discussed briefly above s. This type of trust has its merits, such as having the ease of correcting and revising certain aspects of your trust, at any given time, while you’re still living.
However, there’s one type of trust that may also be a practical choice. This is what’s known as an irrevocable trust. As its name implies, once you put assets into that trust, you can no longer change your mind.
This type is great for cost savings in the future. You may be able to reduce your estate taxes so your heirs can enjoy more of what’s left to them. To know what laws may cover your trust in your area, discuss this with your trust lawyer as well.
Now that you have an overview of what it takes to set up a trust, remove that misconception in your mind that trusts, wills, estate plans, and other related documents are only for the wealthy. If you want to secure the future of your young children, drafting a trust document, among others, is the key. Life is full of uncertainties, so it’s better to plan so you can leave something for your loved ones. Get in touch with a family lawyer you can trust, and start setting up your trust.