08 Jun Estate Planning 101: How to Build a Trust
By definition, a trust is a written agreement that states how you want your property distributed to your beneficiaries when you die. The primary goals of a trust is to limit your estate tax liability, avoid probate and to protect the property within your estate. Here are several components of a long-lasting, effective trust:
This is the person in charge of setting up the trust. This person may also be called the trustor or settlor. They decide what goes into the trust and who will be the beneficiaries. Depending on the type of trust, the grantor is allowed to change any part of the trust until he or she dies.
This is the person in charge of managing the trust and making sure it complies with rules pertaining to the type of trust. Many people choose to be their own trustee. If you are married, you and your spouse can be co-trustees, so that when one dies, the other will be able to handle their assets without additional legal actions. The grantor can also choose a successor trustee, usually the adult children of the grantor.
The beneficiary (or, if multiple, beneficiaries) is the one who benefits from the trust by receiving all or part of the property in the trust after the grantor dies. The beneficiary can be family, friends or a charity.
Type of Trust
There are different ways you can set up a trust. Each of them come with a set of rules and guideline that will need to be seen through, as well as their own benefits. For example, a revocable trust is created during the lifetime of the grantor and can be modified, changed or completely revoked. An irrevocable trust cannot be modified, changed or revoked once it is created. It is important to discuss with an estate planning attorney which option is best for your needs and goals.
The objective of a trust is essentially the goal the grantor hopes to achieve. Different types of trusts present their own objectives. A single-estate trust can achieve one objective while others expand a broad range of goals. Your estate planning attorney can help you decide what is best for your financial future.
Once property is placed in a trust, it is known as “trust property.” Trust property can include any type of asset, such as real estate, cash, securities or life insurance policies. The trustee is required to manage the property in line with both the grantor’s wishes and the rules of the type of trust that has been established.
When setting up a trust, it is important to understand the basic structure of the agreement so you can plan accordingly. You should speak to an estate planning attorney to help guide you through the process. If you are ready to learn more about creating a trust, feel free to contact us.