Are you ready to set up a trust for your family? Get started with this detailed how-to guide
Establishing your legacy through estate planning is one of the important things you can do for your family. Everyone needs a plan for how they intend their assets to become inheritance. For most people, the thought of estate planning conjures up the idea of drafting a will; however, a will vs. a trust is not always the best option for your financial situation or wishes.
Trusts are a powerful estate planning tool that can be used in place of, or in addition to, a will. They are a more sophisticated way to transfer assets, and with dozens of trust options available, they offer more flexibility than a will.
While estate planning in general can feel complicated, opening a trust is relatively simple. Intentional thought and foresight is required, but once you have made decisions about assets and beneficiaries, you can open a trust fairly quickly, depending on the complexity of your estate.
Trust Basics
A trust is a legal arrangement that details how, when and to whom you want your assets to be distributed. Trusts can hold several different types of assets — money, investment accounts, real estate, stocks/bonds, family heirlooms and even a personal business. There are three people or entities involved in a trust:
- Grantor: The person who opens the trust and funds it with assets. The grantor also sets the terms for the trust by outlining what is held in trust and how they want it to be distributed.
- Trustee: The person or organization that holds, manages and eventually administers the trust. The trustee acts on the grantor’s behalf, ensuring that the exact terms of the trust, as set up by the grantor, are acted upon.
- Beneficiary/Beneficiaries: The person or people who will eventually receive the assets in the trust.
Unlike wills, trusts can go into effect during your lifetime — you do not have to die in order to have your assets transferred. When you do pass, a trust allows you to avoid probate court, saving your beneficiaries time and money by avoiding the legal system compared to having just a will. Additionally, you could lower estate and inheritance taxes on assets in trust.
Making the decision to open a trust is the very beginning of the process. Here are some steps to help you understand what to expect.
Steps to Set up a Trust
1. Identify Your Goals
First and foremost, it’s important to clarify your why for opening a trust. This will determine what type of trust you should open to best fit your needs. While there are many different types of trusts to choose from, generally speaking, each option falls under one of two broad categories:
- Revocable trusts (Living trusts): These trusts are able to be altered throughout the grantor’s lifetime. If you expect any of your circumstances to change, such as your assets or if you have the potential to have a child or grandchild, this is your most likely option. This type of trust gives you the freedom to modify the terms when you need to.
- Irrevocable trusts: This type of trust cannot be altered. To open an irrevocable trust, you need to have an estate lawyer assist you. Irrevocable trusts are often used as a tool for tax planning in addition to transferring assets to your intended beneficiaries.
2. List Your Assets and Beneficiaries
Assets can be anything that you want to pass down to your family. Taking inventory of your possessions can be the hardest part of this process. From there, you’ll also want to determine which beneficiaries receive the inheritance.
3. Ask for Professional Guidance
Although it’s possible to open certain trusts like a revocable trust through a digital estate planning service, it can be complex. Once you know your goals — or at least have a rough idea about them, reach out to a financial professional at Trust Point (Emerj360 is a division of Trust Point) to help you choose the specific trust or trusts that will accomplish your wishes. The team will make sure to collaborate with your attorney, if you are already working with one, or can recommend an attorney from a partner firm.
Because there are many different types of trusts — charitable trusts, credit shelter trusts, education trusts, special needs trusts, irrevocable life insurance trusts, just to name a few — Trust Point can help you select the best option that fits within your financial big picture.
4. Create the Trust Agreement
The trust agreement is the legal document that outlines the terms of your trust — how, when and to whom you want your assets distributed. You will also detail the duration of the trust and if there are any circumstances that will terminate the trust. As this is a legal document, it will need to be notarized, which is an important step because it authenticates the agreement.
This document gives your trustee the legal authority to manage your trust on your behalf, should you become incapacitated or pass away. Your trustee has the obligation to administer the terms of your trust exactly as you outlined them. In general, if you open a revocable trust, you are typically the initial trustee while you are alive.
5. Fund and/or transfer assets to your trust
A trust needs to have assets, or else it’s meaningless. How you fund your trust depends on what you are transferring. If you are setting up a trust fund — meaning you intend to transfer money to a beneficiary, then you need to set up a bank or investment account that is registered into the trust’s name.
Because trusts hold assets for you, you have to actually transfer what is listed in your trust agreement to the trust itself. For example, if you want your home to be included in your trust, you need to file a new deed that lists the trustee and name of the trust as the owner. Vehicles and other property that require a deed can be transferred in the same way. If property doesn’t have a title, such as heirloom jewelry, then describe it in detail and note that it is part of the trust. Again, the Trust Point team, or an estate attorney, will help you identify and transfer your assets accordingly.
6. Review and Manage
This is especially true if you have a revocable or living trust — it should be reviewed and updated periodically to reflect any changes in new assets, beneficiaries or wishes. Keeping all documents and deeds up to date is important and should be done annually if conditions change or at least every three to five years.
A History Built on Trusts
Emerj360, a division of Trust Point, is based on Trust Point’s over century-long experience as a fiduciary. Our team of financial professionals can offer experienced insights on how to best mitigate risk, grow your wealth, and protect your assets and wishes for transfer.
Book a meeting with an Emerj360 team member if you’d like to have a conversation.
