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Estate Planning

How to Set Up a Trust

9 min read
Unbundled Legal Help

by Unbundled Legal Help

If you have money, property, or other types of assets you want to transfer to your loved ones or for a charitable cause, setting up a trust fund is an excellent option. While the process is relatively simple, setting up a trust does include complex clauses, instructions, and laws. 

Setting up a trust includes the following steps:

  1. Selecting the right type of trust
  2. Knowing the details to include in your trust
  3. Making it legal
  4. Assigning a trustee
  5. Funding the trust
  6. Registering your fund with the IRS

Trust funds are not for everyone. Before taking the steps to set up your trust, it is recommended you consult with a proven estate planning lawyer in your area. We can connect you today with an unbundled estate planning attorney. Learn more about how to set up a trust below. 

What Is a Trust?

A trust fund is a way to allow your money to continue its usefulness after you pass away. Assets within a trust can be dispersed to beneficiaries at any time specified in the trust agreement. You can place stocks, bonds, property, cash, and other types of assets into a trust. 

Who Can Benefit From Setting Up a Trust?

Contrary to popular belief, trust funds are not only for the super-rich and ultra-wealthy. They are also beneficial for middle-income people that wish to pass their assets on to family, friends, and/or charitable causes. 

In addition to passing money to an individual, organization, or cause, trusts offer many financial benefits for the grantor (creator of the trust) as well as the beneficiaries (those that receive the funds). A few benefits of setting up a trust include:

  • Avoidance of probate fees
  • Avoiding, limiting, or delaying taxes
  • Asset protection from creditors
  • More control and privacy than a will 
  • Can help individuals to qualify for public assistance and government benefits
  • Financial support for those with a disability while still allowing for government benefits

If you are interested in one or more of the benefits of setting up a trust, it may be in your best interest to contact a financial planner as well as a trust lawyer in your area to discuss your goals. 

How Does a Trust Fit Into an Estate Plan?

Estate planning is essentially the structure you create for your assets in the event of your death or incapacitation. Estate planning includes many factors such as wills, trusts, power of attorney, etc. Trusts cannot make up the entire will. Most professionals would recommend a will and a trust fund (if necessary). 

If you have assets that you would like to leave behind to the family members of your loved ones but include strict disbursement instructions, a trust would be an option worth looking into. 

Choose the Right Type of Trust

There are many types of trusts. Each type is structured to address specific needs. The type of trust you choose will depend on many factors such as: 

  • When you would like the funds to be dispersed
  • Who you would like to receive the funds
  • How you would like the funds dispersed
  • Your current financial situation 
  • Federal and state laws
  • How much control you would like over the trust 

Revocable vs Irrevocable Trust

The two basic categories of trusts are revocable and irrevocable trusts. The grantor of a revocable trust can change the terms of that trust at any time. This includes adding/removing beneficiaries, changing disbursement stipulations, and revoking the will. In general, the assets placed in a revocable trust are still considered the property of the grantor and are taxed as such. 

On the other hand, the terms set in an irrevocable trust cannot be changed, except for rare circumstances. If those unusual conditions are met, the beneficiaries must agree to any changes to the trust. One of the biggest benefits of setting up an irrevocable trust is tax relief. 

Assets placed in an irrevocable trust are removed from the grantor’s estate and are not subject to estate tax upon their death. Furthermore, there are many other tax benefits for the benefactor and beneficiaries. 

Other Types of Trusts

There are many types of trusts available to fit your needs. Whether you are interested in giving your assets to charity, you want to bequeath your fortune to loved ones, or your main interest is asset protection, there is a trust for you. The most common types of trusts include:

  • Asset protection trust
  • Charitable trust
  • Constructive trust
  • Special needs trust
  • Spendthrift trust
  • Tax by-pass trust
  • Totten trust

As you can see, there are many ways to create trusts that might work for you and your beneficiaries. Discuss your needs with an estate planning attorney so you can choose the option that is best for you. 

Know the Parts of a Trust

In general, there are four parts to a trust. They include:

  • The grantor or the trust maker is the person who creates the trust. 
  • The property and/or assets that are placed in your trust.
  • The beneficiaries (those that will receive the assets).
  • The trustee is the person who administers the trust and carries out your wishes.

In some cases, you may decide to be the trustee until you are no longer able to. But generally, once you have chosen the type of trust you prefer, you will also need to choose your trustee, the assets to be placed into the trust, and the beneficiaries. Also, it is best to know how long you would like the trust to last and under what conditions it will cease to exist. 

Make It Official, Hire an Attorney

The process of setting up the trust is simple, but the steps can be complicated. This means that you can choose the DIY trust fund path, but every word and step you take when creating a trust can have a major impact. This is why it is best to hire a financial planner and estate planning lawyer to help you formulate the best strategy and create an ironclad trust agreement. 

Assign a Trustee

The trustee you choose will be responsible for managing the trust as well as distributing the assets. Choosing the right trustee is important to the overall success of your estate plan. Your trustee can be you (until unable), a close friend, family member, or organization. 

Regardless, the trustee’s job is to act in a fiduciary role by only making decisions that are within your instructions and in the best interest of the fund. The duties of a trustee can vary. Common responsibilities include paying bills, staying up to date on taxes, making investment decisions, and keeping clear records. 

Corporate trustees typically have a proven track record and can remain the trustee of the fund for generations. If you choose a family member or friend to be the trustee, it is recommended that you select a “successor trustee” to step in, in case they are needed. 

Fund Your Trust

A declaration of trust, deed of trust, or other types of trust instruments mean nothing unless the trust is funded. To fund a trust, you can take your professionally drawn trust agreement to a bank or other type of financial institution and set up the account. 

You can fully fund the trust at one time or make payments to fund the trust. Regardless, all assets placed in the trust will eventually become assets of the trust. 

Register Your Fund With the IRS

After you have established and funded your trust, it is important to register your fund with the IRS. Trust funds have a separate taxpayer identification number (TIN) for tax paying and tax return purposes. 

Since there are so many tax benefits that come with setting up a trust fund, these types of accounts are heavily scrutinized. You can register your fund with the IRS on your own, but it is recommended that you consult with a financial advisor and/or estate lawyer before doing so. 

Do I Need an Attorney To Set Up a Trust?

You are not required to hire an estate planning lawyer to set up your trust. Depending on the complexity of your trust and the assets you place in it, you may not need an attorney at all. However, the vast majority of people will benefit greatly from hiring an estate planning attorney to help them set up their trust fund. The benefits of hiring a trust attorney include:

  • A greater understanding of your state’s laws and how they apply to you
  • Help with choosing the best type of trust
  • Creation and/or reviews of an ironclad trust agreement
  • Help with choosing a trustee

In some cases, a person’s financial situation may call for a will instead of a trust. It is important to speak with a professional estate planning attorney before deciding on a trust. This can help to ensure that setting up a trust is best for you and that you choose the right type of trust. 

How Much Does It Cost To Set Up a Trust?

In general, setting up a trust does not have to be that expensive. The legal fees account for most of the costs. Most estate planning lawyers charge $2k - $7k upfront, and an additional hourly rate on top of that. Depending on the type of trust you intend on setting up, the complexity of your instructions, and the number of assets, you could end up spending thousands of dollars to set up a trust agreement. 

Save Money With an Unbundled Lawyer Today

Estate planning lawyers typically charge so much because they handle all aspects of your estate planning needs. 

With unbundled legal services, you can hire an unbundled attorney to handle parts of your estate planning needs (i.e. creating a trust agreement) while you save thousands in upfront fees by taking care of the rest. 

Fees for unbundled estate planning attorneys start as low as $500 - $1500. If your estate planning needs are more complex, our team of unbundled attorneys also offers full representation at affordable rates. 

Get instantly connected with an unbundled attorney in your area who will work through the parts of your trust, and learn if your estate planning needs are a good fit to be unbundled today.

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