Given the wide variety of estate planning goals that can be furthered using a trust, there is a very good chance that you will choose to include a trust agreement in your estate plan at some point. With that in mind, the staff at the Northern California Center for Estate Planning & Elder Law discuss what to consider when creating a trust.
Creating a Trust
- Have a clearly defined trust purpose. Because trusts have evolved so much, there is now a specialized trust to help meet almost any estate planning goal. Before you can begin to create your trust, therefore, you need to narrow down your goals. Every trust must have a trust purpose that can ultimately be referred to by the Trustee, or even a judge if necessary, when making critical decisions relating to the trust. Is your trust purpose to protect assets? Guard your child’s inheritance? Gift to charity? Narrow down your trust purpose as much as possible and write it out.
- Clearly identify your beneficiaries. Often, this is the easiest part if you are creating a trust specifically to gift assets to loved ones. Other times, however, deciding on the beneficiaries can be more complicated. For example, if you are creating a charitable trust, you may spend a significant amount of time deciding on your beneficiaries. No matter who your beneficiaries are, be sure to identify them clearly so there is no doubt who is intended to benefit from the trust.
- Choose the right type of trust. All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust, activates during the Settlor’s lifetime. Living trusts can be sub-divided into revocable and irrevocable living trusts. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time and for any reason. An irrevocable living trust, on the other hand, cannot be modified or revoked by the Settlor at any time nor for any reason once active. Testamentary trusts are always revocable because the Will that triggers activation is always revocable until the Testator’s death. To a large extent, your trust purpose, will dictate which type of trust you need to create. Creating the wrong type of trust though can cause the trust to fail entirely.
- Appoint the right Trustee. Your Trustee is responsible for managing and investing trust assets as well as administering the trust. The duties and responsibilities of a Trustee are numerous and diverse, requiring you to spend a considerable amount of time deciding who to appoint as your Trustee. Ideally, your Trustee should have a legal and/or financial background to ensure that he/she is capable of administering the trust successfully. Depending on the size and complexity of your trust, choosing a professional Trustee may be your best option.
- Work with an experienced and qualified trust attorney. It can be tempting to search online for a DIY trust agreement form; however, in the long run the time and money you might save using that form will almost certainly cost you and/or your beneficiaries considerably more time and money because of the flaws, mistakes, and omissions in the trust agreement. Working with an experienced and qualified estate planning attorney is crucial to the success of your trust.
- Create your trust terms with care. As the Settlor of the trust you will decide on the terms to be used to administer the trust. You will use those terms to decide when assets can be distributed, how assets should be invested, and how much discretion you want your Trustee to have, among other things. As the Settlor, you can include any terms you wish as long as they are not illegal, impossible, or unconscionable.
Contact Us
Please download our FREE estate planning checklist. If you have additional questions or concerns about creating a trust, contact us at the Northern California Center for Estate Planning & Elder Law by calling (916)-437-3500 or by filling out our online contact form.
Timothy P. Murphy is an estate planning and elder law attorney whose practice emphasizes helping people to build, preserve and pass on their wealth. He works with his clients to accomplish their goals while avoiding unnecessary court proceedings and minimizing or eliminating exposure to death taxes.
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