How to Form a Living Trust

Agreement Signing

A living trust is an excellent means of avoiding probate and saving ones survivors much heartache and money upon ones death. It is a private document, entered into by a trustor and trustee to hold the trustor's possessions in trust and distribute them in a particular way upon the death of the trustor. When creating a trust, verify the state's specific laws with regard to creation and taxation to ensure all concerns are properly addressed.

Things You'll Need

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Instructions

1. Create a list of all assets that will be placed into the trust. These can include real property, electronics, jewelry, vehicles, money, and investment accounts.

2. Determine who will be the initial trustee and the residual trustees.

3. Determine tax responsibilities for once the trust is funded.

4. Begin drafting the document. Examples of trust document layouts can be found in books such as "Estate Planning and Taxation" by John Bost or on websites such as tax-business.com.

5. Draft the introduction phrasing, which must include the name of the trustor, name of the trustee, and the date.

6. Draft the Trust Property Provision. This area can either list out all assets directly or reference a list of assets that is attached. Typical phrasing for this portion of the agreement includes, "The trustor has set aside and holds in trust the property described in attachment one, attached to this instrument." This provision will also include a sentence mentioning that the trustee agrees to hold the assets.

7. Draft a successor trustee section. At least one successor trustee should always be mentioned to ensure that the trust will be cared for should something happen to the initial trustee.

8. Decide whether the trust will be revocable or irrevocable and draft that provision. An irrevocable trust cannot be canceled once it is established and funded, and has greater tax benefits for the trustor. Both types of trust avoid probate.

9. Draft a section detailing instructions of how the trust will be dealt with while the trustor is alive. Specifications must be made for both the Trust Income and Trust Principle.

10. Draft a section detailing instructions of how the trust will be dealt with upon the trustor's death. In order for a trust to be valid, it must remain active. If a trust is frozen for more than 21 years, some states will cancel the trust entirely.

11. Draft a provision to address what will happen to the trust upon the death of the last survivor mentioned. Typical provisions can include leaving the trust in care of a charity.

12. Draft a provision to specify what the trustee can and cannot do. While the law does hold trustees to certain standards such as prudence in dealing with investments, it is helpful to specify any wishes and concerns.

13. Draft the executionary statement to say, "IN WITNESS THEREOF this instrument has been executed as of the date set forth on the first page of this instrument." Place two lines with the names of the Trustor and Trustee for signatures. Place a line for a notarization of the signatures to appear.

14. Transfer all titles and assets into the trust by changing the ownership documents.

Tips & Warnings

• Consider consulting with an estate planning attorney if total assets exceed one million dollars.

References

• Estate Planning and Taxation. John C. Bost. 2003

Resources

• Example Revocable Living Trust