Starting A Trust: Basics And Benefits

Starting A Trust: Basics And Benefits

Although many people have heard that it is a good idea to set up a trust to pass your property to loved ones instead of a will, they don’t really understand why. As a law firm that creates estate plans built on trusts as well as those built around traditional wills, we have definitely seen the benefits a trust can provide—if it is set up and funded correctly.

So, to help you get the most from a trust, here’s some basic information about setting up your trust and the advantages it can provide.

A Trust is Not a Good DIY Project

There are risks to using software or copying forms to create any type of estate planning document, but attempting to create a trust on your own is probably the most risky. Trusts must comply with strict legal requirements to operate as intended. If you create a trust document that is not treated as valid by financial institutions and other organizations, you could tie up your assets in a way that could be very expensive to repair. So it is highly advisable to work with an experienced attorney when setting up a trust. Your attorney can not only ensure that the document is set up with the correct terms to meet your goals but your legal advisor can help you ensure that you transfer assets into the trust properly.

How Trusts Operate

A trust is an artificial legal creation set up to hold property for someone. The person who puts property into the trust is sometimes called the grantor. Once property has been moved into a trust, it is managed by the trustee, and eventually distributed to the beneficiary to use. The trusts most people set up as an alternative to a will are revocable living trusts. Because they are revocable, they can easily be canceled or changed. You can take property out whenever you want. The grantor also usually serves as their own trustee and they hold the status of beneficiary. That means they can control and use the property in the trust just as they did before it was in the trust.

By contrast, if you set up an irrevocable trust, you cannot be the trustee. You lose control of the property and you cannot take it out again. The trustee will distribute assets in the trust to the beneficiary according to the terms of the trust and any applicable legal requirements. Irrevocable trusts are set up to protect property from creditors, tax liability, and other potential losses. They are strong, but inflexible.

Trusts Start Out Empty and Must Be Funded

Once your attorney creates a trust document for you, the next step is to transfer your property into the trust. This is known as “funding” the trust. For some types of property, such as your household goods and collectibles, your attorney can create a document that lists the assets and declares that they belong to the trust. For other property, however, you need to take a few more steps.

If you own real estate, you will need to have an attorney prepare a new deed transferring ownership of the real property into the trust. Vehicles with a title will need a new title showing the trust as the owner. Banks have different procedures you’ll need to follow to transfer accounts into the trust. Your attorney should help you review your assets and go through the procedures necessary to transfer them into the trust. Certain types of property, such as retirement accounts, should not be transferred into your trust.

Benefits of a Revocable Trust

The most popular reason people set up revocable living trusts is so that their loved ones can avoid the delays and expense of the probate process in the future. Typically, when a person passes away, someone from the family must petition the probate court to gain authority to administer the estate. Then they need to follow the legal requirements of the probate process which can be confusing and time consuming. It often takes a full year to finish paying the bills and satisfying other requirements and only then can the people named in the will receive the assets in the estate.

With a revocable trust, there’s no need to deal with probate court. The person named as the successor or alternate trustee pays the bills left behind and then distributes assets to the successor or alternate beneficiaries. It’s less confusing, less expensive, and much faster. By taking the time to set up a trust and transfer assets into it, you save your loved ones many legal headaches in the future.

In addition, a trust can be set up so that the successor trustee can manage your property if you should become incapacitated, which can be a huge help if you’re in an accident or struck by a sudden illness. Finally, distributing property through a trust is private, unlike a will which becomes a matter of public record once it hits probate court.

Inhulsen Law Can Get Your Trust Established and Funded So You Will Be Prepared for the Future

Trusts can be confusing, so you should never hesitate to ask questions. It is important to understand how your trust works so that you can take full advantage of the benefits. At Inhulsen Law, we can explain how the specific terms of your trust operate and guide you through the process of funding your trust. To learn more about trusts, just schedule a consultation

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