A trust is a legal entity that allows you to transfer the administration of personal and/or real property (like a house, shares of stock or bonds) to another person (the trustee). The trustee administers the trust assets in accordance with your instructions as specified in the trust document. As a fiduciary, the trustee is required to follow a high standard of care and must disclose any conflicts of interest to beneficiaries. The trustee should also manage the trust’s assets prudently, not speculating on them or taking unnecessary risks. Trustees may be compensated and their expenses reimbursed, but they must disclose these compensations to the beneficiaries and comply with all other provisions of the trust agreement and relevant law.
When creating a trust, you will first want to talk with an estate planning attorney who has experience in setting up trusts. The attorney can help you understand the benefits and help you draft a trust document that works for your family’s situation. You should also consider coordinating with your tax and financial advisors to ensure that the full picture of your estate plan is taken into consideration.
Depending on your goals, you may decide to set up a revocable or irrevocable trust. A revocable trust gives you the flexibility to change the terms of the trust as your circumstances change. This can be particularly useful if you want to include new grandchildren or charitable organizations in your plan. A revocable trust may also be beneficial if you want to minimize potential conflict between your heirs as it allows you to specify the exact items and monetary amounts you want to leave each beneficiary. This can be especially helpful if you have items that carry sentimental value to you, such as artwork or family heirlooms.
In addition to establishing the terms of the trust, you will want to name a trustee and a successor trustee. You can choose to work with a professional trustee or select someone you trust to be in charge of the trust, such as a family member or friend. If you work with a professional trustee, they will have the experience to avoid potential family dynamics and to objectively and consistently execute your trust in accordance with your wishes.
You will also need to retittle all of your assets into the name of the trust, which can take some time and fees, depending on the number and types of assets and their location. Your attorney will be able to guide you through this process and can recommend a trusted asset management firm to assist you. You will also want to consider preparing a power of attorney for any assets you hold outside of the trust so that a chosen individual can legally manage these assets on your behalf if necessary prior to your death or in the event that you become incapacitated. You may also wish to create a healthcare power of attorney so that a designated individual can make medical decisions on your behalf.