What are trusts? They are legal and fiduciary agreements created to ensure that designated beneficiaries receive a person’s assets. Moreover, a trust agreement is one of the essential tools in planning your estate. It guarantees that an assigned individual will manage your assets according to your wishes.

Its advantages include possible tax benefits and flexibility to change terms and conditions. A trust instrument can also help people during illness or disability. Hence, it can also serve normal individuals, not only the rich.

Process of Setting Up a Trust

A trust generally has the following elements:

  • A settlor, trustor, or grantor who set up the trust as an estate planning tool
  • A trustee
  • Trust property or the property subject of the trust
  • Beneficiaries
  • Legal formalities

Learn the process of creating a trust agreement in the succeeding sections.

1. Choose the best type of trust for you

There are several trust types, and they have their advantages and disadvantages. You must select the right kind of trust to serve your and your beneficiaries’ best interests.

Irrevocable trust

The grantor can’t change the terms of an irrevocable trust after they create the agreement. This trust may help avoid estate taxes and protect assets from creditors.

Revocable trust

It is also called a living trust in which the grantor may alter the agreement during their lifetime. It may eliminate probate delays and expenses. Moreover, the beneficiaries can easily access the trust income.

Testamentary trust

It exists only upon the testator’s death because it is part of a last will. A testamentary trust protects the assets of children from a previous marriage. In addition, the trustor can modify the terms while they’re still alive.

Special needs trust

It allows a physically or mentally ill individual to access trust income without losing the benefits of public assistance programs, such as Supplemental Security Income or Medicare. The beneficiaries can use the trust income for medicine and transportation, not housing or food.

Land trust

A revocable trust specifically dealing with real estate properties. Trustors establish this agreement for privacy and asset protection.

2. Select a trustee

A trustee is an individual or corporation authorized by the settlor to manage and execute the trust property.

  • An individual trustee is usually a family member or close friend receiving no compensation for their role.
  • A corporate trustee is a legal entity whose primary function is to manage a trust. Corporate trustees usually get 0.5 to two percent annually of the trust assets.

Trustees have a crucial role in ensuring the proper execution of trusts. Hence, you must look for several qualifications before selecting a trustee.

  • Your trustee must be willing to perform their duties. It may become challenging, especially during family conflicts, but they must follow the instructions mentioned in the trust.
  • Their job involves acting in the best interests of the beneficiaries. Accordingly, they show impartiality when deciding on trust-related matters.
  • Financial competence can also help your trustee since they deal with properties and assets.
  • A trustee must be honest and trustworthy so that they can still manage the trust property even after the settlor’s death.

3. Identify beneficiaries

Beneficiaries are persons named in a trust to receive property. For example, a trustor named a beneficiary, Emma, in a living trust. The trust instrument stated that a certain amount must be used for Emma’s education. The document may also grant Emma specific properties once she reaches a certain age.

Beneficiaries generally have the right to monitor the trustee’s activities regarding the trust instrument. Hence, trustees usually send annual reports to beneficiaries indicating the trust property’s gains, losses, and expenses.

If the trustee fails to perform their responsibilities, the beneficiaries may request corresponding actions from the court. The beneficiaries may also file a petition before a probate court if they suspect the trustee violated their duty to manage the trust property. If granted, they can sue or replace the trustee.

4. Fund the trust

Depending on the property type, there are several ways to establish a trust fund.

  • For personal properties without titles, you can sign a general transfer document containing the assets you’re transferring to the trust.
  • You can transfer titled personal properties like motorcycles and cars by designating your trust as a beneficiary on the title. In effect, the title to the vehicle automatically transfers to the trust upon death.
  • You must contact your bank for the requirements for transferring your accounts to the trust. You may need to sign forms provided by the financial institution.
  • You can transfer real estate to your trust by signing a deed to transfer your interest in the property and recording such a document with the County Recorder’s Office.

5. Create a trust agreement

The settlor or trustor must create the trust agreement outlining the distribution and management of trust property. Most trusts state a simple allocation to beneficiaries without restrictions. However, some documents set out a staggered distribution scheme.

The two types of asset distribution include in-kind and cash distributions.

  • In-kind distributions involve the distribution of trust property without converting them into cash. As a result, the beneficiaries may receive investment accounts, real estate properties, stocks, and automobiles.
  • On the other hand, cash distributions involve using cash, wire transfer, cashier’s check, or a check in which the funds come from the trust account.

Moreover, the trust instrument contains the trustee’s power and responsibilities. Their technical duties may include the following:

  • Invest assets to preserve them.
  • Prepare and file tax returns.
  • Organize financial records and documents.
  • Insure trust property against damage.
  • Instruct professional advisors when appropriate.


Use the Best Estate Planning Tools

Setting up a trust entails selecting the proper type, choosing a competent trustee, identifying the beneficiaries, funding it, and creating a legal document. Although you can make a trust instrument, a lawyer can draft a customized estate plan for your situation. They can also ensure the protection and distribution of your assets according to the trust agreement.

Contact our office today to book a consultation with Cristy J. Carbon-Gaul. She specializes in trusts and is an expert in the latest estate planning tools, so you can be assured that your properties are in good hands.