If you are not familiar with estate planning trusts, you may be intrigued by them and want to learn more. Although trusts are often thought of as being only for the rich and famous, they have become much more accessible in the past few decades. Thanks to the Internet, you no longer have to know an attorney to learn about the Spendthrift Trusts and
Dynasty Trusts referred to in movies. Despite how much information you can find about trusts online, you may still have trouble understanding how trusts work if you have never made or administered a trust. This article provides an overview of trusts and how to access information on the different types of trusts used in
When you create a trust, you execute a trust document. The next step is to transfer title to all property you wish to hold in the trust into the name of the
trustee of the trust. For example, Jane Doe makes a living trust on March 1, 2020 and chooses to be the original trustee. As the original trustee, she will take title to trust property as Jane Doe, trustee of the Jane Doe Living Trust dated March 1, 2020.When a married couple makes a living trust, they may choose to be the original co-trustees of their trust. For example, John and Mary Smith make a living trust dated March 1, 2020 and are the original co-trustees. They will take title to trust property as John Smith and Mary Smith, trustees of the John Smith and Mary Smith Living Trust dated March 1, 2020. In most living trusts, the person making the trust is named the original trustee during his or her lifetime. However, the maker of the trust must name one or more successor trustees to administer the trust after their death. Many people name their adult children, siblings, other relatives or close friends to serve as successor trustees. If you do not know who to name as trustee, an alternative is to use a
trust company as your successor trustee.Although the trustee holds legal title to trust property, the trustee cannot use the property for his own benefit and must only use trust property for the benefit of beneficiaries of the trust. The trustee is a fiduciary and must adhere to certain standards. For example, when investing trust assets and managing the trust portfolio, the trustee is held to certain standards of conduct. For an overview of what this entails, review the
trustee investment duties.Any property you want held in trust for the beneficiaries must be properly transferred to the trust. This means you must change the title to such property from your name to the trustee of the trust. This process is known as funding the trust. This may include executing
trust transfer deeds to real estate, changing the title on bank accounts, and taking other steps to ensure your assets pass through the trust instead of through probate. Property that is properly transferred to your trust will ultimately be distributed to the beneficiaries according to the provisions of the trust document and applicable law.If you form a revocable trust, you will have the option to revoke the trust and transfer the trust property back into your name. If you form an
irrevocable trust, you will not be able to get the trust property back and it may only be distributed according to the terms of the trust. Always discuss the consequences of transferring assets to an irrevocable trust with a lawyer before making the transfer. If you make a revocable living trust, the trust becomes irrevocable when you die.
How to Terminate a Trust
After you set up a trust, circumstances may arise that cause you to want to terminate it. The trustee or successor trustee of a trust may also determine there is a need to terminate the trust prior to its natural expiration. Depending on the type of trust involved, there are different steps to take. See how to terminate a trust for more information.Copyright 2020 Pennyborn.com. ALL RIGHTS RESERVED.Updated January 22, 2020.
Reasons to Make a Trust
There are several different types of trusts. The reasons for making them vary, but the following is a list of the most common reasons for making a trust:1. To avoid the time and expense involved in probate of your estate.2. To maintain privacy for you and your heirs and prevent certain financial information about your estate from becoming public through probate.3. To take advantage of tax planning strategies that are associated with certain types of trusts.4. To control the timing, amount or manner of distribution of the gift or
inheritance your children, grandchildren or other heirs will receive.5. To provide financial security for individuals you name as beneficiaries of the trust. See
Debts Trust Beneficiary.6. To achieve charitable goals that are associated with certain types of trusts.7. To obtain asset protection advantages associated with certain types of trusts.Not everyone needs an estate planning trust. Even if a trust is recommended for your situation, it may not be right for you if you cannot commit to following all the steps involved in funding and maintaining an estate planning trust. You should have a good understanding of what is involved in funding and maintaining a trust, as well as the alternatives to a trust, before spending money to make a trust. If you want to know some of the steps you will need to take to administer an estate planning trust, review our page on trust administration.Understanding beneficiary designations is also essential when considering whether you need to make a trust. Before deciding to make a trust to leave an inheritance to someone, review your financial assets and evaluate what your beneficiaries will receive from your pay on death bank accounts, life insurance, annuities, pension, and other retirement accounts. You may also want to compare the lump sum inheritance they may receive from these accounts compared to the distribution options you can structure with a trust.
How Much Does a Trust Cost?
Taking the proper steps to create and fund an estate planning trust is not cheap. Trusts are typically used by people that have accumulated enough assets that they can afford to spend money on an estate plan. While you can purchase estate planning software to print a living trust document without an attorney, it is generally not recommended. This do it yourself approach is likely to result in many errors that could result in your living trust being invalid or improperly funded and could result in your property passing as if you died without a will. If you are interested in making a valid trust, you will need an attorney.The amount you will have to pay an attorney to prepare your trust will depend on several factors, including:a. The type of trust. For example, a simple living trust typically costs less than a complex tax saving trust such as a grantor retained annuity trust or a dynasty trust.b. The size of your estate. If your trust only includes your primary residence and a few financial accounts, it will probably cost less than a trust which includes vacation homes and rental properties in several different states.c. Your estate planning objectives. For example, if you want a very straightforward trust that leaves property directly to your beneficiaries with no restrictions, it will cost less than making a trust which has specific milestones for the timing and amount of distributions or complicated restrictions on how trust funds may be spent.
d. The type of attorney you hire. Hiring a solo practitioner to prepare your estate planning trust usually costs much less than hiring an attorney that works at a large law firm.If you hire an attorney to prepare your estate planning trust and complete all the associated paperwork, such as trust transfer deeds, a pour over will, etc., be prepared to spend a few thousand dollars or more. Some attorneys will charge less, while others will charge much more. There are several steps you can take to reduce the cost of making an estate plan. To learn how, see
finding an attorney.
Types of Trusts
There are many types of trusts that can be created to serve a variety of different estate planning objectives. Types of trusts include pot trusts, special needs trusts, minor's trusts, Crummey trusts, funeral trusts, QTIP trusts, charitable trusts, and pet trusts. Trusts may also be created for purposes of asset protection and for other reasons as well. Because each type of trust has its own set of advantages and disadvantages, it is important to understand which one will meet your specific objectives before you pay to establish a trust. To learn about the unique features of different kinds of estate planning trusts, review our summary of Other Types of Trusts.Because there are costs involved in setting up, funding, settling, and closing a trust, make sure you have an understanding of the paperwork and fees involved in having a trust before you let someone talk you into making one. A common estate planning mistake is establishing a simple living trust as soon as you become interested in making an estate plan, only to find out later that a more complex type of trust would be better suited to your situation. To avoid having to revise your estate plan by making a new will and trust after you learn about all the options available, consult with an experienced estate planning lawyer that can provide a comprehensive review before recommending a particular type of will or trust.For information on a type of trust that may be included in a last will and testament, refer to our section on
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