Have you considered setting up a trust but thought a trust wouldn’t apply to you?
Perhaps because you thought it’s something only rich people use to distribute their assets?
The truth is anyone who has assets they want to leave to another person or organization should consider using a trust.
Depending on the type of trust, you may be able to save money on your taxes now and save your beneficiaries money on their taxes later, among other benefits trusts can provide.
Read on to learn more about trusts.
What is a Trust Fund?
A trust is an estate planning tool that outlines how assets will be transferred after someone’s death to another person for the benefit of a third person, people or organization.
The person giving the asset away is the grantor. The person who will manage the assets is the trustee.
The person, people or organizations receiving the assets are the beneficiaries.
Tips for Setting Up a Trust
When setting up a trust, there are important tips to keep in mind and follow in order to ensure the trust is valid and enforceable. And to ensure that the settlor’s wishes get handled after they pass on.
There are factors to consider while drafting the trust and procedures to follow once the trust is established.
Below are tips on how to set up a trust fund.
1. Use an Estate Attorney
These days it seems you can find a “form” or advice about how to handle any type of legal matter yourself. While this may be possible with a trust, it is not recommended.
Trusts and estate planning, in general, are subject to a lot of special rules and laws. They require certain conditions to be met in order for your trust to be valid and your plans to be followed once you pass.
By using a qualified estate attorney who is familiar with laws pertaining to trusts, you can help ensure neither the courts nor the IRS will want to step in to dispute your plans.
It will also help fill any loopholes that might make your trust contestable by beneficiaries who believe they should have benefited under your trust but didn’t.
2. Choosing Your Beneficiaries (and When They Should Inherit)
A beneficiary is an individual, a class of people, or an organization that benefits under the trust.
When you create your trust, you have complete control over when and how your assets are transferred to your beneficiaries. You can give everything to one person or split up your assets to whoever you like.
There may be reasons to make a beneficiary wait until a certain age to receive benefits or have them receive the benefits over a period of years (or their lifetime).
There also may be reasons to omit someone as your beneficiary altogether. One good example is if you have a beneficiary you would normally have wanted to inherit from your estate, but having them do so may make them ineligible for government benefits due to a disability. Inheriting may disqualify them.
3. Determine the Best Type of Trust for You
There are many different types of trusts. Once you have decided who your beneficiaries are and how and when you want your assets disbursed to them, it will be easier to determine which type of trust will most suit your needs.
Most types of trusts do exactly what they imply in their name. Such as a charitable trust is a trust you can use when you want to leave some or all of your assets to a charity. If you have a beneficiary who receives money from the government because they have a disability, a special needs trust may be best for you.
Some of the other types of trusts help reduce estate tax burdens or protect the assets of the trust from being distributed to creditors.
Your individual needs may benefit from other types of trusts as well. So discussing the options with an estate attorney is recommended before deciding.
There are both revocable and irrevocable trusts. This means that some trusts can be changed after you set them up and some cannot. There are good reasons for both types, but your individual situation will help determine which is right for you.
4. Choose the Right Trustee
The trustee is the person who will handle the management of the trust and oversee that your desires are followed. It is an important decision to make in establishing a trust, so think through your decision carefully.
In some types of trusts, this may be you for a period of time and then transferred to someone else later.
In others, you will need to name another person. You will have the choice of naming a family member, trusted friend, an attorney or a corporate trustee.
The upside of using a family member or a friend to administer the trust is they may do it for free. However, the downside is you likely won’t get the same expertise and knowledge handling your affairs as you would if you used an attorney or corporate trustee.
5. Obtain a Taxpayer ID for the Trust
After your trust documents have been signed and the trust officially established, you need to get a taxpayer identification number for the trust.
Since the trust will become the new owner of the assets held under it, the trust will be subject to the same requirements an individual person is held to. For example, the trust will have to file tax returns.
6. Fund the Trust
In order for a trust to be valid, it must own assets in its own name. So once you have received the taxpayer identification number, it is now time to fund the trust.
You will do this by transferring the assets you plan to give to the trust into a bank account or other financial institution.
Since establishing a trust fund can be done through different types of assets, such as cash, real property, stocks and bonds, the trust’s assets will help determine the best place to deposit the trust’s funds.
You will need to give the holder of the assets all the relevant trust information such as the names of the trustee(s), their address and their phone number.
7. Maintain Records of the Trust
It is important to maintain the records of the trust in a logical and easy to understand way.
So whoever you name as the trustee needs to keep the records up to date and complete. This will help make filing tax returns and preparing accountings for the beneficiaries easier.
It will also assist any subsequent trustee within understanding the state of the trust upon their appointment as the new trustee.
8. Update Your Trust as Necessary
After your trust is established, life changes may arise that make you want to change something you put in your trust. Provided your trust can be revoked and changed.
Death of a beneficiary, divorce, new additions to your family and changes in the state of an organization named as a beneficiary are just some of the issues that may arise.
Consider reviewing your trust once each year to make sure it still outlines how you currently want your affairs handled.
Take Steps to Set Up Your Trust Today
If you do not already have a trust and wonder if setting one up is right for your estate planning needs, talk to a reputable trust attorney today to set up a time to discuss your individual wants and needs when setting up a trust.
If you already have a trust set up and haven’t updated yours recently, consider doing so as soon as possible. Especially if any big life changes have occurred since you set up your trust.
Having your estate plans finalized will set your mind at ease, knowing your desires will be followed when you no longer can ensure they are.
Do it today.