What is a trust?

A legal trust is a entity frequently used in estate planning to help a person distribute property or provide for a loved one after they have passed away. The trust is a written set of rules that will determine how, what, when, and where a gift or property is to be distributed to an heir or beneficiary. Because a trust is a legal entity, you must follow the rules outlined in your state to ensure that the trust is set up correctly, managed by a reliable individual, and properly funded.

Choosing a Trust

Your first step is to decide what type of trust as they vary depending on when the person receives the property, whether or not you can revoke the trust, and what restrictions you want to place on the trust.

Some common types of trusts and their primary purposees include:

• Testamentary trust: set up to distribute property after you have passed.
• Inter vivos trust: used if you want to allow a relative to have access to your planned gift or distribution while you are still alive.
• Revocable trust: you can later reclaim the funds or assets you put into the trust if you decide the trust no longer fits your needs or wishes.
• Irrevocable trust: cannot be revoked once it has been established.

In addition to these general categories, you can place restrictions on how your trust will be handled. For example, if you want a trust to give a $100 per month to three different people, you can specifically outline this instruction.

Because of the variety of trusts available, you should consult an experienced estate planning attorney for consultation and assistance establishing the trust that best fits your wishes.

Setting Up a Trust

Once you decide the type of trust best suited for your purposes, you can then proceed to establish the trust. Generally, there are three parts to a establishing a trust.

1. Name the beneficiaries. A beneficiary is the person you intend to benefit with the trust. Once the trust is established, the will have a right to have the assets used for their benefit in the way set up within the trust.

2. Name a trustee. If you are setting up trust to distribute a gift after you have died, you should make sure that you name or appoint a reliable person to serve as a trustee of your trust. A trustee controls and manages the trust. An unreliable trustee can upset your plans for distribution or management of fund assets. The trustee will hold the legal title of any assets included with the trust. Legal title is not quite the same as full title.

Even though the trustee has the power to manage the assets, their power is limited by the trust. This usually means that the trustee is only allowed to use or sell the property for the benefit of the beneficiary. You can place additional restrictions on a trustee’s powers when you establish the trust. Most states will require the beneficiary and the trustee to be separate persons. If done properly, some states will allow the trustee and the beneficiary to be the same person.

3. Fund the trust. A trust can be funded by cash or property. Once property is transferred to the trust estate, the assets become part of the trust estate. The trust estate is all of the money and assets which pay for a trust so that the trust can make disbursement to a beneficiary. Some people have assets, like land or automobiles, to fund a trust. However, you can also fund a trust with cash savings or the proceeds from investment property.

Case Studies: Exploring Trust

Case Study 1: The Johnson Family

The Johnson family consists of John and Sarah Johnson, a married couple with two children. They want to ensure that their assets are protected and properly distributed to their children in the event of their untimely passing.

To achieve this, they decide to establish a revocable living trust. By naming their children as beneficiaries and appointing a trusted family friend as the trustee, the Johnsons can ensure that their children’s financial needs will be taken care of according to their wishes.

Case Study 2: The Thompson Charitable Trust

Mr. Henry Thompson, a wealthy philanthropist, wants to establish a trust that will support various charitable causes even after his lifetime. He decides to create a charitable remainder trust, which allows him to donate assets to the trust while still receiving income from those assets during his lifetime.

After his passing, the remaining assets in the trust will be distributed to his chosen charities. This enables Mr. Thompson to support causes he cares about while benefiting from the income generated by the trust.

Case Study 3: The Miller Special Needs Trust

Emily Miller has a child with special needs named Alex. She wants to ensure that Alex is taken care of financially, even after she is no longer able to provide for him. Emily establishes a special needs trust, designating her sister as the trustee.

This trust will provide supplementary funds for Alex’s living expenses and medical care without jeopardizing his eligibility for government assistance programs. By creating this trust, Emily ensures that Alex’s unique needs will be met throughout his life.

Getting Legal Help

A trust is only one of many estate planning tools available to you. Depending on your finances and the value of your estate, you may want to consider other options like a good life insurance policy, to ensure that a loved one is properly cared for after your death. An attorney that specializes in probate or estate planning can help guide you through the steps required to establish trust in your state. They can also help you explore other estate planning options better suited to your situation.