When you hear the word “trust” – certain images might come to mind like trust fund babies and wealthy individuals with high net worths. However, in reality, a trust is a powerful planning tool that can benefit families from all walks of life and economic backgrounds. Trusts can minimize costs, protect assets, and spare beneficiaries from the time-consuming and expensive probate process. They can also enable you to stretch distributions to beneficiaries over a longer period of time, as well as protect assets from creditors and predators who might seek to take advantage of vulnerable heirs.
A trust is an arrangement in which the grantor transfers property (money, real estate, investments, etc.) to a trustee who manages the assets for the benefit of one or more named beneficiaries. The trustee can be an individual or a corporate fiduciary. Choosing the right trustee is an important decision, as it will determine how effectively your intentions will be carried out after death.
The first step in creating a trust is to gather the assets that will be transferred to it. This can include property you already have formally titled in the name of the trust, as well as others that will need to be marshaled and re-titled in accordance with the terms of your trust document. Once this is complete, it is a good idea to create an inventory of the assets in order to make it easier for the trustee to manage them in the future.
You should also decide when and how the trustee will distribute trust assets to the beneficiary or beneficiaries. This allows you to provide a framework for how your wishes will be carried out after your death, and it can help to avoid conflicts between family members after your death. You can also establish conditions for distribution to ensure that beneficiaries are able to manage the assets properly, or to protect against financial pitfalls such as addictions, divorce, or bad credit.
It is also a good idea to discuss your goals with your attorney before the trust documents are drawn up in order to be sure that they reflect your intentions. In addition, you may want to consider naming back-up trustees in case one or more of the original Trustees is unable to serve or resigns. This can be particularly important for a family trust, in which you may be naming descendants who are still minors.
It is a good idea to also talk to your tax advisor and investment professionals about how you can use your trust to minimize taxes and protect assets. In addition, you will need to work with your fiduciary partner(s) to ensure that the trust is properly diversified and invested in accordance with your goals. This will not only reduce the cost of investing, but it will also make it much easier for your trustee to manage your trust’s investments after your death. Finally, it is important to keep your trustee(s) informed of the trust’s operations so that they can address any concerns or questions that may arise.