A trust is a way of holding and managing property, whereby the person setting up the trust (called the grantor, settlor, or trustor) transfers property to a trustee, who manages the property for the benefit of others (called beneficiaries).
To better understand trusts, it helps to know a few basic terms:
- Living trust. A trust that is set up while the grantor is alive (also known as an inter vivos trust).
- Testamentary trust. A trust that is set up by the grantor’s last will and testament.
- Revocable trust. A living trust that the grantor may change or cancel at any time.
- Irrevocable trust. A living trust that the grantor may not change or cancel.
Trust agreement. The legal document that sets up a trust. It is sometimes called a Declaration of Trust; however, the title on the document may simply read “The Ondicho Family Trust,” or something similar. It sets forth the names of the grantor, the trustee, and the beneficiaries.
It also states how the trustee should distribute the income from trust assets while the grantor is alive, and how the assets or income should be distributed to the beneficiaries after the grantor’s death.
Why to Set Up a Trust?
A trust is set up to achieve certain benefits that cannot be achieved with a will. These can include:
- Avoiding probate.
- Avoiding or delaying taxes.
- Protecting your assets from creditors of both you and your beneficiaries.
- Maintaining privacy regarding your assets.
- Exercising greater control over your assets than might be achieved with an ordinary will.
- Allowing you to qualify for certain benefits, such as for long-term medical care.
Do You Need a Will or a Living Trust?
A will and a living trust do not serve exactly the same function. Depending upon your situation, you may only need a will. But if you decide that you need a living trust, you will also need a will. It’s important to know which choice is better for you.
How to Set Up a Trust
1. Creating the Trust Agreement
The grantor creates a trust agreement, which is a legal document that designates the grantor, the trustee, and the beneficiaries, and outlines how the trust assets are to be managed and distributed.
Part of this step is deciding who you want to name as beneficiaries, how you want the trust income and assets distributed to them, and who you want to name as trustee (or trustees).
2. Funding the Trust
The second step, called funding the trust, is for the grantor to transfer assets to the trust. A trust agreement is worthless unless the trust is funded. How this is done depends upon the nature of the property:
- Real estate. To transfer real estate, the grantor executes a deed that transfers the title to the property to the trust.
- Personal property with a title document. Some assets, such motor vehicles, boats, RVs, airplanes, and mobile homes (also known as modular or manufactured homes) have some type of title document, which can be transferred to the trust. This can also be done with stocks and bonds.
Other personal property. All other property without a title document can be transferred by simply writing a description of the property on a piece of paper (such as “all of my household goods,” or “my coin collection”), and making a note that it is being transferred to the trust.
How Long Does It Take to Set Up a Trust?
In general, it is possible to set up a functioning trust in a few days to a couple of weeks. If a lawyer creates your trust, the time will vary depending upon how quickly you can get an appointment, how quickly you can get the required information submitted, and how long it takes the lawyer to create the trust agreement and take any action needed to fund the trust.
If you create your own trust, the time will also vary according to how quickly you can become educated about trusts.