Probate is a time-consuming and expensive process that occurs after a person’s death. It includes verifying the validity of a will, inventorying and appraising property, paying debts and taxes, and distributing property. [2] X Research source A grantor is the person who creates the trust. The grantor establishes the nature of the trust, transfers initial assets to the newly established trust, and defines its rules. The trustee is responsible for managing the trust and its assets. The trustee can be the grantor, a trusted family member or friend or a corporate trustee such as the trust division of a bank. If the grantor designates himself as the trustee, then he should also choose a successor trustee to serve as trustee in the case of his death or incapacitation. The trustee must follow the rules of the trust and act in accordance with state law. [3] X Research source Grantors can also name a successor trustee(s) if the initial trustee(s) fail to serve for any reason. The beneficiaries receive the property in the trust. The rules of the trust establish which property the beneficiaries receive, the circumstances that must be met, and the timing of the property distribution. [4] X Research source
The grantor of the fund has the power to establish rules and requirements in terms of how money will be distributed or invested. The principal is the money or property that was initially given to the trust. It is also called the corpus. [7] X Research source Stocks and other investments earn interest and dividends. This is referred to as income. [8] X Research source Increases in value to the principal are the profits or capital gains. [9] X Research source
A living trust can distribute assets to beneficiaries after your death or use assets to provide for your long term care while you are still alive if necessary. [12] X Research source With a revocable trust, you retain some ownership of the assets in the trust, allowing you to make changes in the way the assets are handled if you deem it necessary. With an irrevocable trust, you transfer complete ownership of the assets to the trust. [13] X Research source Revocable and irrevocable trusts also have different tax implications. Revocable trusts are subject to some estate taxes, whereas irrevocable trusts may be set up to avoid estate taxes. [14] X Research source A bypass trust is useful for married couples with assets in excess of $5 million. It allows them to avoid some estate taxes when passing inheritances to heirs. A bypass trust is also known as a credit shelter trust, a marital trust, or a family trust. [15] X Research source A special needs trust provides for a disabled person. [16] X Research source A spendthrift trust defines the terms under which the beneficiary can receive the property, such as at a specific age or as a series of payments over a number of years. It may also limit the types of expenses on which the money can be spent, such as college tuition. [17] X Research source A charitable remainder trust donates assets to a charity upon your death. [18] X Research source
If you appoint yourself as the trustee, you should also name a successor to take over as trustee upon your death or if you become incapacitated. [21] X Research source If you choose an individual to be your trustee or successor trustee, choose someone whom you trust to manage the assets responsibly and to respect your wishes. [22] X Research source You can also nominate joint or successor trustees. When choosing a trustee, consider the value of the assets and the complexity of the trust. Choose someone who has the capabilities and the time to manage the responsibilities. [23] X Research source If you choose a bank to be your trustee, you may also appoint an individual co-trustee. The advantages of having a bank as a trustee include professional record keeping and tax preparation, objectivity, no conflicts of interests and protection against misappropriation of funds. Disadvantages of using a bank as a trustee include the lack of a relationship with the beneficiaries, meaning they may not understand the dynamics and relationships within the family. Bank investments are also generally conservative, which may have a negative impact on the trust’s potential to earn income. Banks do charge fees for acting as a trustee, but an individual may also expect to be paid a fee for serving as a trustee.
Some states require that the trustee use specific language to do this. Others allow a trustee to use his own words. Most states impose a time limit within which trustees must make contact with beneficiaries upon the grantor’s death.
Note that transfers from living persons will be subject to gift taxes.
If you decide to use an attorney, find a trust and estates attorney who regularly handles matters that match your concerns and situation. For example, if you are setting up a trust for a disabled child, find an attorney who frequently deals with that area. If you don’t already know an attorney, you can search for one on sites such as FindLaw or Lawyers. com. Look for a trust and estates attorney who is a member of the American College of Trust and Estate Counsel. [30] X Research source You can create a trust document on your own without an attorney. Find high-quality self-help materials to assist you. Nolo, a publisher of legal self-help books and software, publishes an Online Living Trust application that can guide you through the process. You can also visit their Estate Planning Library to find books that can help you write the document. [31] X Research source Do be cautious, however, as trust laws and taxation of trust assets are complicated. Establishing a trust without legal advice is possible but not recommended.
