There are three essential parties involved in a Trust:
- The Grantor - the person who created the Trust and transfers their assets into it.
- The Trustee - the person to whom the grantor gives the power and responsibility to manage their assets for the benefit of one or more beneficiaries.
- The Beneficiary - the party or parties who benefit from the Trust assets.
In the vast majority of cases, you will be Grantor, Trustee, and beneficiary of your Trust, as long as you are alive and able. Then your Trust will specify who will become the successor Trustee and Beneficiary after you pass away.
Setting up a Trust is a two-part process. People tend to be very good at doing the first part but overlook the second part, which is equally as important:
Step 1: The first step is to draft and sign the Trust document. But, before you can draft your Trust document, there are few important things you need to consider:
- What assets will go into your Trust? You can put virtually anything that you own into a Trust, whether it is land, buildings, money, investment, business interests, and even belongings like jewelry. The more of your assets you put into your Trust, the more effective your Trust will be.
- Who will be your Beneficiaries? The Beneficiaries of your Trust can be your spouse, children, grandchildren, or other loved ones, as well as, charities, causes, and organizations that you want to support.
- When will distributions be made? Consider when your Beneficiaries will receive distributions from your Trust. This could mean including age requirements or specific terms for how the Beneficiaries can become eligible to receive an inheritance from the Trust.
- Who will be your Trustee? Your chosen Trustee can be someone you trust, such as a relative, friend, attorney, or accountant, or you can choose a financial institution or professional Trustee.
After you have given consideration to the factors listed above, you should enlist the services of a qualified estate planning attorney to draft your Trust document. An experienced attorney will help make sure that your Trust document expresses your intent clearly and that it includes the specific terms needed to achieve your estate planning goals.
Step 2: The critical second step in setting up a Trust, the part that many people overlook, is funding the Trust. This means taking your assets and changing the ownership documents, such as the deed or title, so that they identify the Trust as the legal owner of those assets.
If you fail to fund your Trust, a great deal of your assets may be unable to pass to your heirs and beneficiaries without the involvement of a probate court, which will likely result in considerable legal fees, significant delay, loss of privacy, and some unintended consequences.
The cost associated with setting up a Trust will depend on the amount of assets you transfer into the Trust to fund it, as well as the type of Trust you create. An attorney will charge you anywhere from $1,000 to $7,000 to set up a Trust, depending upon the complexity of your financial situation.
A Trust is an excellent way to ensure that your wealth is used the way you want it to be used, both during your lifetime and long after you pass away. Furthermore, a Trust will enable the assets held in the Trust to bypass probate and pass to your beneficiaries without court intervention. A Trust can also be used to fund goals for future generations, such as going to college or purchasing property. You can even set up a Trust to support your favorite charity and ensure that your legacy lives on.
A simple Will can accomplish many of the same estate planning goals that a Trust can accomplish. But a Trust can accomplish goals that a Will cannot.
For example, while a Will allows you to direct how your assets will be distributed after you die, a Trust allows you to direct how your assets will be managed, both during your lifetime and after you pass away. Similarly, a Trust avoids court intervention in the handling of your estate, both when you become incapacitated and after you pass away.
There are, however, some drawbacks to a Trust. A Trust is more expensive to create than a Will and, most importantly, it is useless if you do not fund it with assets.
What's more, for your Trust to be most effective, you must actively continue to fund your Trust with new assets that you acquire throughout your lifetime. So, it takes a little more work to create and maintain a Trust than simply signing a Will.
Ultimately, whether a Trust is right for you depends on your individual circumstances. If you don't have assets to put into the Trust, and don't plan to actively manage your estate plan, then a Trust may not be the right estate planning document for you.
Remember, when it comes to estate planning, one size does not fit all. If you are interested in learning more about setting up a Trust or creating a comprehensive estate plan, consult with a qualified and experienced estate planning attorney.