A lot of people think trusts are interchangeable with wills. This notion couldn’t be further from the truth. Though these terms are somewhat related, they are very distinct.
For some families, setting up a trust is a must, while for others the idea has never crossed their minds. Regardless of what lot you belong to, it helps to have a firm understanding of the trust process.
In this guide, we’ll explain how to set up a trust for your family. That way, you can set up a trust and leave your family in good hands once you depart. However, first, let’s explain what exactly what is a trust.
What Is a Trust?
We sometimes use trust interchangeably with family trust or revocable living trust. A trust is a legally binding document established to cover an individual’s assets. The trust will define how the assets should be handled during the person’s lifetime and after the person’s death.
There are many different types of trusts, each with different terms. The type of trust you settle for will depend on your current situation or your lawyer’s advice.
A revocable living trust involves two parties, namely:
The grantor– The grantor is the person who initiates the trust process. Grantors transfer their assets to the trust, thus making the trust the owner and not the person.
The trustee– The trustee is on the receiving end of the grantor’s assets. However, no assets are transferred to the trustee until the grantor passes away.
A trust is a legal document that stipulates how a trustee should handle an individual’s wealth in the event of an untimely death. This trust is for the benefit of a third party who perhaps hasn’t come of age to handle the assets prudently.
How to Set up a Trust Fund
Most people shy away from a revocable trust because of their perceived complexity. While a trust is certainly more complex than a will, there isn’t too much to the entire process.
Plus, with help from a legal professional, setting up a trust will be a walk in the park. Here’s how to set up a trust for your family.
Get All the Relevant Details
The first step in setting up a trust for your family is getting all the necessary details. It will be much easier for the legal entities to set up your trust fund if you’re clear about what you want.
If you’re looking to set up a trust, here are a couple guiding questions you could ask yourself:
- Who is transferring the assets to the trust? (the grantor)
- What assets am I putting into the trust?
- Who are the trust beneficiaries? (Who will benefit from this trust agreement?)
- Can this trust be changed, is the trust revocable?
These are the main guiding questions. You’ll need more details than answers to these questions. Have your legal counsel guide you through any more details you might need to set up the trust.
Seek Proper Legal Counsel
You’ll need a good attorney to set up your trust successfully. Your attorney plays a significant role in the smoothness of setting up your trust.
Remember, trust laws vary from state to state, but some facets of these trust laws apply across the board. Experience is always a good thing for your attorney to have.
Have your attorney create the full trust instrument. This is the document that makes the trust official and recognized by the United States Government.
There’s no set size for this document. Usually, its length will depend on the number of listed assets or the terms of the trust. Go over the document, and if everything’s clear, sign it off to proceed to the next step.
Transfer the Assets
With the trust documents done and dusted, you can now move to transfer the actual assets. This process will involve giving the property you’d like to transfer a new title.
This new title could be in this form, “Trustee name” as trustee of “Name of the trust.” Pretty brief and concise. Sorry, you, as the grantor, wouldn’t get any credit on the new title unless you make special arrangements.
Register With the Taxman
Any trust-involved party has its unique taxpayer identification number. So to be on the right side with the taxman, don’t forget to register with the IRS.
This taxpayer identification number is required to carry out several financial transactions from the trust. These transactions include opening bank accounts, transferring funds, and other crucial everyday activities.
Define the Parameters of Your Family Trust
You need to define the terms of your trust. This versatility and flexibility is one amazing benefit of trust over wills.
For instance, you can define if the oldest son can have twice as much as the youngest son. What’s more, you can decide after a couple of years what should happen to your assets.
Arrive at your final decision after much deliberation without overlooking any crucial factor. Depending on whether you settle for an irrevocable or revocable trust, you may not be able to revoke the trust or change the terms of the trust.
Keep Accurate and Up-To-Date Records
With everything on lock, all that’s left for you is to keep detailed records of the trust. These records are in line with government regulations and will ensure how smoothly your assets will be transferred to the trustee.
With the right record-keeping, in case of any lawsuit or discrepancy, you’ll be well prepared. If record-keeping isn’t your strongest suit, you could always hire a bookkeeper for the dirty work.
Trusts Over Wills
Now that you know how to set up a trust for your family. You may want to abandon the idea of a will altogether. Trusts are more versatile and flexible and give you more control when you pass away than a will.
However, remember your trust is only as good as your attorney and trustee. So please take your time before settling on either party. They could make or break your trust.
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