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Setting up a trust involves appointing a trustee who can protect the properties and confirming that the trust is written in clear terms expressing your desires. Trust is a legal body that allows an individual or body (called the “trustee”) to hold and manage assets on behalf of someone else or a group of people (the “beneficiaries”). Trusts are commonly used to protect assets, minimize taxes, and cater to beneficiaries after their death.

Steps for Setting Up a Trust

A trust is a legal contract under which property or money owned by one person (the grantor) is given to another person (the trustee) so that it may be distributed later to some third party or parties (the beneficiaries).

  1. Decide on Your Required Type of Trust. The first step when setting up a trust is determining the needed type of trust. There are several kinds of trusts, each with its own pros and cons. The most common types are:
    • Irrevocable Trust: Once an irrevocable trust has been established, it cannot be changed or revoked again thereafter; hence, it is predominantly used in tax planning and asset protection.
    • Revocable Trust: The grantor retains control of his/her assets throughout their lifetime with a revocable trust, which can be changed as occasion may demand. On the death of the grantor, it becomes irrevocable.
    • Testamentary Trust: This will only become operational upon the demise of the testator is a testamentary trust. It is commonly used to cater to minors or beneficiaries who are unable to manage their share.
    • Special Needs Trust: A special needs trust caters to disabled persons’ financial requirements without affecting their qualification for government assistance.
  2. Choose a Guardian. After you have made your decision regarding the type of trust that best suits your situation, you should choose a guardian or trustee. As such, the one who manages and distributes assets held in the trust as per its conditions is known as the trustee. You may select either an individual or an institution like a bank or trust company to act as the trustee. Your selection criteria may include the experience, knowledge, and reliability of any potential candidate for this position. Among other things, you must think about whether this person can take on the responsibilities of managing money, making investments on behalf of beneficiaries, and talking to an estate’s executors.
  3. Formulate a Trust Deed. The next step after this is to establish trust by creating a trust agreement. This document outlines the conditions of the trust, assets included, beneficiaries, and trustee’s duties. Also, the trust agreement has to state how the assets will be distributed amongst beneficiaries as well as any prerequisites to be met before those assets are distributed. To ensure that your wishes are entirely followed, an experienced lawyer needs to draft the trust agreement.
  4. Fund Your Trust. Once you have created a trust agreement, you are required to fund your trust. This involves transferring ownership of assets into the name of the trust, such as property, stocks, and other investments. The asset will be overseen and distributed by trustees among beneficiaries in line with what was stated in their trusts. To avoid unintended tax consequences and properly affect an asset transfer, discuss with your attorney and tax advisor when funding a revocable living trust.
  5. Review and Update Your Trust. After establishing different kinds of trusts, there is a need for regular review and updates. This may entail scrutinizing the terms set out in your Trust Agreement so that they can conform to your current needs or even change trustees or inheritors. Reviewing held-in-trust properties periodically to determine whether they still fit into one’s objectives or not altering them according to one’s investment strategy is mandatory, too.

Merits of Establishing a Trust

There are several advantages of using trust as part of an estate plan, which include but are not limited to the following:

  • Estate Taxes Reduction: High-net-worth individuals can benefit significantly from trusts because they can be used to reduce or eliminate estate taxes.
  • Bypassing Probate: This saves time and cost incurred on probate by the beneficiaries thus making it necessary for the use of trusts to hold these assets.
  • Asset Protection: Certain types of trusts, such as irrevocable trusts, can protect one from creditors and lawsuits.
  • Controlling Assets: By establishing trust, the grantor controls how their wealth will be shared in the future as per their desire after death.
  • Benefiting Loved Ones: To ensure responsible asset distribution among their family members, like children or grandchildren, in this case, trusts may come in handy.
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Key Terms for Setting Up a Trust

  • Executor: Someone chosen in a will who manages the affairs of someone who has died. Paying off debt and taxes would be some of the executor’s responsibilities along with handing over goods where there have been continuous trusts established.
  • Will: A legal statement that sets forth how someone wants their possessions divided once they die. An executor usually identified here would act upon these intentions besides naming guardians for minors or any other specification provided therein.
  • Beneficiary: Any party receiving something under either a testamentary instrument or probate registered document like that mentioned above shall serve this purpose; these individuals could also include pets if need be.
  • Fiduciary: These positions are occupied by people or entities that have the legal and ethical mandate to look out for others’ interests. Trusts and executors should be seen as examples of such fiduciaries.
  • Power of Attorney: Another person who is an attorney-in-fact is given authority to act on behalf of a person, giving them power of attorney. A power of attorney document can enable someone to manage another person’s finances or medical care in case they become disabled.
  • Probate: It is through this court process that a will is validated, and assets belonging to the deceased are shared. This takes quite some time to complete, as well as being expensive, and only certain properties may undergo probate while others do not fall under this category.
  • Living Trust: These trusts are put into effect before death but still offer use during one’s lifetime, such as when it comes to managing assets, irrespective of death or incapacity. Planning with living trusts avoids probate and provides continuing management in the event of disability.

Final Thoughts on Setting Up a Trust

A trust is a powerful tool for managing assets and protecting them and can be highly beneficial to both the person who creates it and the intended beneficiaries. The proper type of trust, an appropriate trustee, and careful asset management decisions are all that are needed for a trust to serve your estate planning needs and provide for your dependents.

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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.


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