How to Set Up a Trust

A trust is a good way to protect your assets during your life and after you pass away. It can provide financial security for your children and your spouse. The following steps will help you determine what type of trust is best for you.

Difficulty:

Moderate

Instructions

Things You'll Need

• Financial Calculator
• Attorney Referral Services
• Banks
• Paper And Pencils

1. Investigate types of trusts. A "living trust" is one in which assets are used and controlled by you during your lifetime and are distributed when you die as directed by the trust. The probate process is avoided for assets put into the trust.

2. Unlike a living trust, a "testamentary trust" takes effect when you die. It is usually tied to a will and can help eliminate or reduce estate taxes for your beneficiaries. A testamentary trust does not avoid probate.

3. Set up the trust once you have determined the type you need. Determine who you want as your trustee (the person responsible for ensuring that the terms of the trust agreement are carried out).

4. Consult with your bank, attorney or certified financial adviser.

5. Obtain the appropriate documents from your adviser (or purchase a software program to assist you) and complete them to set up the trust.

6. Fund a living trust. Identify which assets to include in your living trust. These are the assets over which you have control and wish to control during your lifetime.

7. Change the titles of these assets; you'll be putting them in the name of your trust.

Tips & Warnings

• When you have a spouse, children or others that you want to care for financially, it's a good time to consider setting up a trust.

• You can take steps so that your trustee will administer the assets in your living trust if you become incapacitated for any reason.

• Trusts are not public documents; your affairs remain private.

• A trustee should have financial savvy and make decisions impartially. It is sometimes wise to use an attorney, financial planner or another professional as your trustee.

• Even if an asset is mentioned in your living-trust documents, it is not a trust property unless ownership has been transferred to the trust.

• Some assets do not need to be placed into trust. Retirement savings, bank accounts for which you have signed "payable on death" declarations and life-insurance proceeds go directly to beneficiaries named with the respective institutions.

• Probate is the legal proceeding designed to validate a person's will and designate the person or persons who receive the assets. The process can take between 9 to 12 months, and the total fees may equal 5 or 6 percent of the total asset value.

• Not only must trustees exercise impartiality, they must be available as long as the trust exists. Choose wisely and designate a successor trustee as well.

• Trusts do not necessarily exempt your estate from estate taxes. If your total assets will be greater than $650,000, plan with the assistance of an attorney. An estate-planning expert is also needed if you wish to leave unequal bequests to close relatives or if your situation is out of the ordinary in any respect.