Preparing/Drafting a Trust Document

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This entry will focus on planning/preparing and drafting a Trust document– what it is, what it can include, benefits, etc.

There are roughly eight steps in the process of developing a valid trust document:

1. Decide what type of trust best suits your particular situation. You may already know what you are looking for, but if not, an experience lawyer will be able to help you determine which type of trust would satisfy your goals.

2. Decide what items to leave in the trust. Several types of property may be transferred to a Trust. The following types of property can be effectively transferred to a Trust:
a. Personal property
b. Automobiles
c. Real Estate (Real property)
d. Bank Accounts
e. Registered Stocks & Bonds
f. Life Insurance
g. Retirement Plans

3. Decide who will inherit your trust property.

4. Choose someone to be your successor trustee.

5. Choose someone to manage children's property (if applicable to your situation).

6. Prepare the trust and sign it in front of a notary.

7. Transfer title of property to yourself as trustee.

8. Store your trust document safely.

Now for more general information:

A trust is a legal agreement that allows you (the trustor) to transfer property and assets for the benefit of someone else (the beneficiaries). Beneficiaries can be individuals, businesses, or charitable organizations. You place your assets under control of a trustee, an individual or organization that manages and distributes the assets as set out in a trust document specifying your wishes.

A trust can give you:
• Control--by protecting your beneficiaries from fraud or mismanagement of your assets, especially in case of your disability or death.
• Continuity--by continuing to manage your assets appropriately if you encounter a life-changing event.
• Privacy--by keeping your affairs out of the public record. A will becomes a public record when it's filed with a probate court upon your death, so if you use just a will for estate planning, anyone can access it.
• Tax advantages--by distributing your assets in a way that minimizes your tax burden, or that of your beneficiaries.

There are many types of trusts, each designed to accomplish specific goals. Trust agreements can be great tools, but they're complex, so it's important to understand how they work and how to get started.

To establish a trust, the trustor develops a trust agreement, usually with the help of an attorney. This legal contract specifies the property the trust covers; names the trustee(s); and includes instructions for holding and investing the property, and for disbursing the property and any related income.

A trust can govern the management of diverse assets--money, real estate, an insurance policy, a business, or stocks--during the trustor's lifetime or after his or her death or disability. Once a trust agreement is activated, the trustor no longer owns the assets; they're the property of the trust. The trust is a separate entity.

The trustee has a fiduciary responsibility, which means that the individual or organization is legally obligated to act impartially, in the best interest of all beneficiaries, and may not seek personal benefit from trust transactions. It's important to select a trustee with sufficient knowledge and experience to manage the trust skillfully. For example, if the trust includes a stock portfolio, the trustee must know how to invest the stocks appropriately. Trustees also must keep complete records of trust activity, and file tax returns and make tax payments for the trust.
Trustors can select individuals, such as family members, as trustees. In some cases they can act as their own trustees. However, because the responsibilities are complex, many select an organization with trust services representatives specially trained to administer trusts.

Trusts are classified as either living or testamentary. A living, or inter vivos, trust is created during the trustor's lifetime, while a testamentary trust is created as part of a will and becomes active upon the trustor's death.

Property covered by a living trust usually doesn't have to go through probate when the trustor dies. (Probate is a required legal validation that a person's will is genuine. The term also broadly refers to the administering of an estate.) With a testamentary trust, property must go through probate before it becomes subject to the trust agreement. Both types of trusts can bring tax advantages.

A living trust can be revocable, meaning that the trustor can amend or cancel it at any time. Trustors usually use a revocable living trust when they don't want to lose permanent control of the assets, or they want the flexibility to change their trustee arrangements in the future.

A living trust also can be irrevocable, meaning that the trustor can't change or cancel it after signing the agreement. A testamentary trust is always revocable because it's part of a will, which can be changed at any time.

Our helpful and capable staff invites you to contact us today to schedule an informative, 30 minute free, initial consultation with an estate planning attorney.

PLEASE LOOK FORWARD TO OUR NEXT BLOG POSTING SCHEDULED FOR TUESDAY, MARCH 23, 2010 FOCUSING ON THE DIFFERENT TYPES OF TRUSTS AVAILABLE.