How to Make a Simple Living Trust
Also called an inter vivos trust, a living trust is an entity that possesses ownership of assets on behalf of someone else while the creator is still alive. Living trusts serve to keep assets out of probate. Living trusts are subject to income tax, since the granter receives the income. Living trusts are also subject to estate tax upon death. Generally, a granter (creator of the trust) transfers property or cash to the trustee. In a living trust, however, the granter may also serve as the trustee.
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Instructions
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Choose the trustee(s). The structure of a trust largely depends on its intended purpose. Living trusts are primarily made to avoid probate. The granter may appoint himself as the trustee in order to remain in control of the assets in his lifetime. In such case, the granter will have to name a successor trustee after the granter's death.
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Select trust beneficiaries. The granter of a living trust usually names himself as trust beneficiary as well in order to retain the beneficial ownership of his assets. A separate beneficiary such as spouse or child might also be named to ensure the trust's validity. Upon death of the original beneficiary, the beneficial ownership of trust assets transfers to "remainder beneficiaries" as designed in the trust.
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Execute Declaration of Trust. A Declaration of Trust is a document that encodes the terms of the trust. The document lists the parties mentioned above as well as every original asset of the trust. The powers of the trustees and division of assets among trust beneficiaries are also explicitly stated in the trust document.
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Transfer ownership. Ownership of the assets must be transferred in the trustee's name. If the granter is also the trustee, his title will reflect his role as trustee. In order to show validity of a trust, transfer of assets' ownership must be carried out.
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Tips & Warnings
Have an attorney review a Declaration of Trust prior to its execution. If the status of the trust is challenged, you may have to produce it in a probate court.
Attorneys make good trustees who assume the responsibility very seriously.
