How to set up a trust for an estate

How to set up a trust for an estate

You’re trying to set up your estate plan in the best possible way for you and for your loved ones. For many people, that means setting up a trust or a living trust.

Like a will, a living trust defines how you want your assets to be distributed after your death. But a trust creates significant benefits beyond what a will can do — offering privacy and a more seamless transition of authority over your assets.

Because it’s a more involved process than drafting a will, setting up a living trust requires a bit more upfront legwork. Your attorney will walk you carefully through the process, but it’s helpful to understand how trusts work and what you’ll need to prepare.

What is a living trust?

First things first, a living trust (sometimes called a revocable living trust) is one that is active while you’re still alive — hence, a living trust. The other primary type of trust is testamentary trust , which is incorporated into a will. Because it’s in the will, it doesn’t become active until the writer of the will has passed away. Testamentary trusts still have to go through probate to be activated.

The person who creates a living trust is called the grantor. In most cases, the grantor names themself as trustee during their lifetime.

Because the grantor is also the trustee, they can put any assets they want into the trust and maintain control over them during their life. They can take assets in and out of the trust. They can sell things. They can get rid of the trust altogether. They have complete control.

Assuming the grantor has not eliminated the trust, when the grantor dies, all remaining assets in the trust are transferred to the beneficiaries.

What is the purpose of a living trust?

People create trusts for many reasons. These are the most common benefits :

  1. Probate avoidance.Probate can be a lengthy, expensive, and time-consuming process. When all of an estate’s assets are in a trust, those assets can be distributed directly to beneficiaries without involving the probate court.
  2. Privacy. Anything that goes before a probate court is public record. Because assets in a trust don’t have to go through probate, information about the contents of the estate remains private.
  3. Ease of transition. If the grantor trustee becomes incapacitated or dies, the successor trustee automatically takes over administration of the assets in accordance with the grantor trustee’s instructions.
  4. Protection of minor’s assets. For individuals leaving money to minor children or grandchildren, a living trust creates a useful structure. The trustee can set a date for the minor to take control of the assets and name a successor trustee to manage the funds on the minor’s behalf until that date. This system can also work well with people who are physically or mentally unable to effectively manage the funds.
  5. Creditor protection. Trusts can be structured so that it’s very difficult for creditors of the beneficiary to come after funds in the trust. The trustee has discretion over whether to make payments to the beneficiary’s creditors, so creditors aren’t able to demand trust money.

Setting up a living trust

Because a living trust is a complex legal structure, you’ll need to hire an attorney to help you set one up. Here are the things you need to get started.

Identify all your assets and locate any paperwork

Before you can put your assets into a trust, you need to know what assets you have. Of course, you’ll want to include big things like your house, any insurance policies, and cars. But don’t forget about smaller assets, like jewelry or family heirlooms.

Your attorney will need the paperwork — deeds, titles, etc — for any assets they’ll be putting into the trust.

One note: you can’t put IRAs or other retirement accounts into your trust, but you can make your trust a beneficiary of those accounts. Talk to your attorney about whether that makes sense in your case.

Choose your beneficiaries

The beneficiaries of your trust will receive the assets upon your death. You can name as many beneficiaries as you want, and they don’t all have to be people. You can name institutions or charitable organizations if you’d like. You can even name pets as beneficiaries of your trust

Now would also be a good time to determine whether you want any restrictions on the beneficiaries. For instance, if your children are beneficiaries, do you want them to have full access to the funds when they’re 21? Not until they’re 30?

Note whether you have different beneficiaries named on life insurance policies or retirement accounts so you can discuss any potential conflicts with your attorney.

Choose a successor trustee

You are the trustee of your trust during your lifetime — that allows you to have complete control over the assets. Upon your death or if you become too ill or incapacitated to manage your assets, you’ll need a successor trustee.

It probably goes without saying, but you should choose someone you trust. They’ll have a fiduciary duty to oversee the distribution of your assets in accordance with your instructions.

Transferring assets into your trust

Once you set up the living trust, you have to fund it. That means you’re transferring legal ownership of those assets from yourself to the trust.

A trust that isn’t funded is completely ineffective. If your house isn’t transferred into the trust, then it’s not in the trust. The house would have to go through probate upon your death, and it may not end up with the beneficiary you intended.

To place your home in the trust, your attorney will transfer the deed to your home into the name of the trust rather than your name. If you’re transferring a vehicle into the trust, you’ll need a title change form from the Department of Motor Vehicles.

Your attorney will be able to help you with this process, but it’s helpful to understand the change in ownership.

Creating a pour-over will

We just went over how to set up a trust. Why do you need a will now?

It’s a good question.

And the answer is that it’s always good to have backup. A pour-over will ensures that any assets not in your trust will be transferred there upon your death. Of course, your intention is to transfer all assets into your trust when you set it up and throughout your life.

But things happen. Perhaps something gets left out or you receive funds right before your death. With a pour-over will, you’ll have a complete trust so your loved ones can avoid probate, and all your assets will be distributed as you wanted.

With careful planning, you can manage your assets in the most effective way for both you and your loved ones. We’ll not only help you set up and fund your trust. We can offer advice and guidance about choices like naming beneficiaries and when children should inherit money.

Call, email, or schedule a consultation online . We can help you set up a living trust that works for you and your family.

Maybe you want to avoid probate. Or maybe you need a contingency plan for your family’s financial health. Or maybe, you are just a very cautious person and feel that a trust would be much more flexible than a simple will. But setting up a living trust and planning to create one are two different things. There are questions to answer and worries to address:

      • Do you need a lawyer?
      • When is a trust officially active?
      • How often should you revisit your trust?
      • Can trusts be written from modified templates?
      • How can you ensure your trustee will do as they should?
      • What level of control do you retain after a trust is in effect?

Setting up a living trust is no easy feat, and while you should certainly take advantage of the flexibility and efficacy of trust as your primary estate planning tool, understanding how it works, what is expected of you, and what is in store for you in the long-term, is crucial.

Understanding How Living Trusts Work

At its core, living trusts are an agreement between three parties. The grantor sets the terms and conditions of the trust entity through a trust document and gives a trustee limited administrative rights to oversee the trust, either immediately or after the grantor is no longer involved.

Finally, the beneficiary reaps the benefits of the trust, either through income and periodic distributions or through its eventual bequeathment and resolution. But the devil is in the details. Even a skilled estate planning professional would be wary of offering you a cookie-cutter trust solution.

In other words, there are no (good) templates. Another complicating trust is that a few distinct parameters can massively impact how the trust can be used. It starts with several basic decisions, such as deciding whether the trust should be revocable or irrevocable. Revocable trusts give you greater flexibility during your lifetime.

Still, the trust contents remain at least partially tied to you, which limits the degree to which they can be protected from taxes and creditors alike. On the other hand, irrevocable trusts greatly limit your access to whatever is funded into the trust, which is a matter to consider in and of itself.

Then there are carefully worded, finely structured exceptions where a trust may act as a grantor trust – maintaining some of your rights to the property therein – yet remain irrevocable otherwise. Trusts can be written plainly to avoid probate and minimize tax costs, or they can be structured to provide income to a loved one for decades after your death or to make the most of the family fortune and avoid the consequences of the generation-skipping transfer tax. Some trusts specialize in protecting overseas assets, while others allow you to make generous charitable contributions with your estate while ensuring that your loved ones receive a sizeable income from the same trust. With all that said, your first step in setting up a living trust is simple: finding the right partner.

Step 1: Setting Up a Living Trust Document

Because trusts are so flexible, the first thing you should do is think about what you need. Every estate is different, and your estate’s unique needs and problems will determine what kind of a trust you should draft or have drafted.

What are you worried about the most? What do you have to consider when leaving behind wealth for your loved ones? What would you want your next of kin to consider when using their inheritance? How do you plan to preserve and continue to grow the family’s fortune over generations – or do you intend to let your children decide that?

Finally, there are other practical considerations to keep in mind. Would your estate benefit from a life insurance policy – and if so, would the payout be enough to tip you over the estate tax exemption limit? Do you have a surviving spouse you can share the limit with, and if so, have you considered an AB trust?

Take your time with these questions and bring them to the attention of an estate planning professional. They will be able to further inquire into your estate needs and will have a much better idea of how your first trust document draft should be written.

Step 2: Choosing a Trustee

Once you have the beginnings of a trust, you will need someone to administrate it after you are gone. As an estate planning tool, trusts are only as effective as their trustee. The human element is important – without it, trusts are an intangible entity with a set of written rules and conditions no one is aware of. It is the trustee’s hard work that makes a trusted reality.

Trustees need to be someone you can rely on and competent enough to manage the trust’s funds, assets, and properties. Many people choose their lawyer, others choose a younger family member with accounting or business experience, and others yet rely on financial institutions, banks, and other businesses to manage their trust for them after death.

Whoever you end up choosing, know that you do have some recourse should things go badly. Trustees have a legal obligation to fulfill their responsibilities as trustees towards the grantor and the beneficiary. This is a fiduciary duty, and failure to uphold it can result in severe financial consequences for them.

Step 3: Funding the Trust

A trust document is just a piece of paper without the items it contains – and each of those will require its own piece of paper, dictating that they are now under the management of the trust. This is called funding the trust. It usually is not enough to add an asset list to a trust’s appendix, the same way you might fill out a will.

You need to amend the ownership documents of each item added to the trust to reflect its new ownership status. There are circumstances under which this may be done automatically after death – but it is a complication you can easily avoid by creating and notarizing a few simple amendments.

Step 4: Reviewing and Revisiting Your Plan

Once you have a trust you are happy with, you can forget about it and go on living your life, right? Yes, mostly. Ideally, you should revisit your estate plan as a whole every few years and consider what might have changed since the last time you have reviewed your plans. Maybe your relationships have completely changed, or you no longer think you should distribute your estate the way you planned to.

Setting up a living trust can be planned and drafted in a few hours with a skilled estate planning professional, especially if you have a concrete idea of what you need. But estate plans can take several years to refine and should change just as we change. The last thing you want is to pass away with an outdated estate plan enforcing distributions you might not have agreed on within your final months.

Maybe you want to avoid probate. Or maybe you need a contingency plan for your family’s financial health. Or maybe, you are just a very cautious person and feel that a trust would be much more flexible than a simple will. But setting up a living trust and planning to create one are two different things. There are questions to answer and worries to address:

      • Do you need a lawyer?
      • When is a trust officially active?
      • How often should you revisit your trust?
      • Can trusts be written from modified templates?
      • How can you ensure your trustee will do as they should?
      • What level of control do you retain after a trust is in effect?

Setting up a living trust is no easy feat, and while you should certainly take advantage of the flexibility and efficacy of trust as your primary estate planning tool, understanding how it works, what is expected of you, and what is in store for you in the long-term, is crucial.

Understanding How Living Trusts Work

At its core, living trusts are an agreement between three parties. The grantor sets the terms and conditions of the trust entity through a trust document and gives a trustee limited administrative rights to oversee the trust, either immediately or after the grantor is no longer involved.

Finally, the beneficiary reaps the benefits of the trust, either through income and periodic distributions or through its eventual bequeathment and resolution. But the devil is in the details. Even a skilled estate planning professional would be wary of offering you a cookie-cutter trust solution.

In other words, there are no (good) templates. Another complicating trust is that a few distinct parameters can massively impact how the trust can be used. It starts with several basic decisions, such as deciding whether the trust should be revocable or irrevocable. Revocable trusts give you greater flexibility during your lifetime.

Still, the trust contents remain at least partially tied to you, which limits the degree to which they can be protected from taxes and creditors alike. On the other hand, irrevocable trusts greatly limit your access to whatever is funded into the trust, which is a matter to consider in and of itself.

Then there are carefully worded, finely structured exceptions where a trust may act as a grantor trust – maintaining some of your rights to the property therein – yet remain irrevocable otherwise. Trusts can be written plainly to avoid probate and minimize tax costs, or they can be structured to provide income to a loved one for decades after your death or to make the most of the family fortune and avoid the consequences of the generation-skipping transfer tax. Some trusts specialize in protecting overseas assets, while others allow you to make generous charitable contributions with your estate while ensuring that your loved ones receive a sizeable income from the same trust. With all that said, your first step in setting up a living trust is simple: finding the right partner.

Step 1: Setting Up a Living Trust Document

Because trusts are so flexible, the first thing you should do is think about what you need. Every estate is different, and your estate’s unique needs and problems will determine what kind of a trust you should draft or have drafted.

What are you worried about the most? What do you have to consider when leaving behind wealth for your loved ones? What would you want your next of kin to consider when using their inheritance? How do you plan to preserve and continue to grow the family’s fortune over generations – or do you intend to let your children decide that?

Finally, there are other practical considerations to keep in mind. Would your estate benefit from a life insurance policy – and if so, would the payout be enough to tip you over the estate tax exemption limit? Do you have a surviving spouse you can share the limit with, and if so, have you considered an AB trust?

Take your time with these questions and bring them to the attention of an estate planning professional. They will be able to further inquire into your estate needs and will have a much better idea of how your first trust document draft should be written.

Step 2: Choosing a Trustee

Once you have the beginnings of a trust, you will need someone to administrate it after you are gone. As an estate planning tool, trusts are only as effective as their trustee. The human element is important – without it, trusts are an intangible entity with a set of written rules and conditions no one is aware of. It is the trustee’s hard work that makes a trusted reality.

Trustees need to be someone you can rely on and competent enough to manage the trust’s funds, assets, and properties. Many people choose their lawyer, others choose a younger family member with accounting or business experience, and others yet rely on financial institutions, banks, and other businesses to manage their trust for them after death.

Whoever you end up choosing, know that you do have some recourse should things go badly. Trustees have a legal obligation to fulfill their responsibilities as trustees towards the grantor and the beneficiary. This is a fiduciary duty, and failure to uphold it can result in severe financial consequences for them.

Step 3: Funding the Trust

A trust document is just a piece of paper without the items it contains – and each of those will require its own piece of paper, dictating that they are now under the management of the trust. This is called funding the trust. It usually is not enough to add an asset list to a trust’s appendix, the same way you might fill out a will.

You need to amend the ownership documents of each item added to the trust to reflect its new ownership status. There are circumstances under which this may be done automatically after death – but it is a complication you can easily avoid by creating and notarizing a few simple amendments.

Step 4: Reviewing and Revisiting Your Plan

Once you have a trust you are happy with, you can forget about it and go on living your life, right? Yes, mostly. Ideally, you should revisit your estate plan as a whole every few years and consider what might have changed since the last time you have reviewed your plans. Maybe your relationships have completely changed, or you no longer think you should distribute your estate the way you planned to.

Setting up a living trust can be planned and drafted in a few hours with a skilled estate planning professional, especially if you have a concrete idea of what you need. But estate plans can take several years to refine and should change just as we change. The last thing you want is to pass away with an outdated estate plan enforcing distributions you might not have agreed on within your final months.

Learn about the nature of a trust, and the basics of how one is set up.

by Edward A. Haman, Esq.
updated July 21, 2021 · 4 min read

A living trust can be a vital part of your estate planning process, and they’re easy to set up.

How to set up a trust for an estate

What a Trust Is

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).

A trust is used as part of a comprehensive estate plan, along with other documents such as a will, power of attorney, and healthcare power of attorney.

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 Jones 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 Medicaid for long-term care
  • Providing financial support for a person with a disability, while allowing the person to receive government disability benefits

If you are looking to achieve one or more of these goals, you should consider setting up a trust.

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

Setting up a trust is a two-step process:

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 Takes 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.

How Much It Costs to Set Up a Trust?

If a lawyer sets up your trust, it will likely cost from $1,000 to $7,000, depending upon the complexity of your financial situation. For example, some situations might require a revocable trust for some assets, and an irrevocable trust for other assets. A comprehensive estate plan (which may include a will, power of attorney, living will, healthcare power of attorney, and changing how some assets are owned) will cost more than a single trust document.

While you can make a trust by yourself—using self-help books or online guides—often, creating a trust document is confusing and complex. Having the right support, either through an online service or attorney review of your trust, can give you the confidence you need to know you’re setting it up correctly.

How to set up a trust for an estate

A trust can hold many types of assets including real estate, life insurance policies, and individual retirement accounts. However, to move real estate from the name of the trust grantor into the trust vehicle requires a specific type of trust and specific steps to be followed. Funding your real estate trust is an important step in forming it—perhaps the most important. Property not held within your trust can’t avoid probate.

Types of Trusts and Probate

A trust can be revocable or it can be irrevocable. In a revocable trust, the grantor—trust maker—is the trustee. They still control the property, can sell it, derive income from the property, or use it as they would before the trust. The real estate still remains property of the trust maker and creditors can claim against the assets.

In an irrevocable trust, the grantor names a trustee to oversee the assets included in the vehicle. These properties and other assets are no longer the property of the grantor. They will lose most control over the assets. The grantor cannot sell the property and income from the included assets would go into a trust account. Depending on how the document is structured, they may still be able to use the property as before. An irrevocable trust removes the assets from the grantor’s taxable estate and moves them into the trust which is managed by a named trustee.

If you don’t also have a will directing your property into your trust at the time of your death—called a pour-over will—or if you don’t leave a will, your state may decide which of your family members should receive ownership of the property after your death. Also, the estate will need to go through the long and costly probate process.

If your property is located in another state so you specifically designed the trust to avoid ancillary probate—two separate probates in two states under different laws—your trust is useless until it’s funded with the real estate. Although funding your trust may be the most important step, it’s not the most difficult. In fact, funding a trust with your real estate is a relatively easy, clear-cut process.

Funding Your Real Estate Trust

Follow these steps to transfer the title of real estate into your trust:

  1. Contact a local attorney: Contact an attorney in the county and state where the property is located. Ask them to prepare a new deed transferring the property from your individual name into your name as trustee of your trust.
  2. Sign all necessary documents: Other documents may also be required, such as local, county or state tax forms, or a certificate or memorandum of trust. The attorney should prepare all forms that are required to retitle your property.
  3. Obtain approval from your association: You may have to obtain permission from the association if your property is a condominium or subject to the rules of a homeowner’s association (HOA). This may be necessary before the new deed can be recorded. This is where your memorandum or certificate of trust can come in handy. The association may want proof that your trust exists. You can offer the memorandum without turning over a copy of your complete trust agreement, which will contain a lot of personal information about all the assets you may be transferred into the trust. An attorney should be able to assist you with securing the proper approval from the association.
  4. Obtain approval from your lender: If the property isn’t your primary or secondary residence and is subject to a mortgage, you’ll most likely have to obtain permission from your lender before the new deed can be recorded. Again, your attorney should be able to assist you with securing the proper approval.
  5. Record the new deed: After the new deed and related documents have been prepared and signed, and when the appropriate approvals have been obtained, the new deed should be recorded among the land records of the county where the property is located. The county may also want proof of your trust, making a memorandum of trust convenient in this situation as well. Your attorney should take care of this and return the original, recorded deed back to you.

Recording Fees and Costs

Recording fees and costs can vary significantly from state to state. Some states specifically exempt transfers of real estate into revocable living trusts from recordation and transfer taxes. Others will charge a nominal tax. Still, other states may consider the transfer a sale and assess full taxes. It’s important to take these local, county, and state fees and costs into consideration so you won’t be surprised.

The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.

The Pros And Cons Explained

Putting A House Into A Trust – Is It A Good Idea?

Over the past decade at Rochester Law Center, we’ve helped 1,000s of clients estate plan. Some of the most common questions we get asked are about living trusts. In this article, we’re going to cover some of the pros and cons of putting a house into a trust. Additionally, we’re going to answer some common questions asked frequently about putting a house into trusts, who owns your home after putting a house into a trust, and what you can and can’t do with your property after it’s in your trust.

How to set up a trust for an estate

Putting A House Into A Trust Or Last Will And Testament?

Estate planning is about creating a custom plan to allow you to transfer your money, property, and assets to your family in the most efficient way possible. The two most common estate planning documents are the last will and testament and the revocable living trust.

Both of these documents let you specify which of your loved ones should receive your assets after you pass. However, with a last will and testament, your assets must go through probate court before your family can receive them. This can take months, sometimes even years if your will is contested in court.

On the other hand, a living trust avoids probate court. This means that your family can receive your money, property and assets in a matter of days or weeks after you pass instead of months or potentially years.

Putting A House Into A Trust – Why Do People Do It?

There are two main reasons why people put a house into a trust. The first reason is that they want their family to be able to inherit their home without having to go through the long, stressful, and expensive probate court process. Instead, their home can be transferred to their heirs in a private setting shortly after their death.

The second reason deals with planning for incapacity. It’s a common misconception that estate planning only plans for death, but comprehensive estate planning plans for incapacity as well. When you create a living trust, you will name a successor trustee. This person is responsible for distributing your assets to your heirs after you die. They are also responsible for stepping in and managing the assets in your trust if you become incapacitated and can no longer communicate. By putting a house into a trust, you can ensure that one of your most important assets will be managed and taken care of by someone you trust in the event you become incapacitated.

Putting A House Into A Trust – How Does It Work?

In order to avoid probate court, your assets need to be placed into a living trust. This called funding the trust. When you create a living trust, you are known as the settlor or grantor, depending on what state you live in. When you set up the living trust, you also assign yourself as the trustee. The trustee is the person who has the right to manage all of the money, property, and assets that are placed inside of the living trust. By naming yourself trustee while you are living, you maintain the ability to manage all of the assets in your trust just like you do now. For example, if you plan on putting your house into a trust, you can still sell it at any time in the future.

Additionally, you will name your beneficiaries in your revocable living trust. Your beneficiaries are your loved ones that you want to inherit your money and property after you die. Usually this is a spouse, children, grandchildren etc.

Lastly, you will designate your successor trustee. Your successor trustee is the person who will take over management of your living trust after you die or become incapacitated. They will be responsible for settling your estate and distributing your assets to your beneficiaries after you die. Additionally, if you are putting your house into a trust, the successor trustee is the person who will manage your home, and any other assets you placed in the name of your trust if you become incapacitated.

In the next section we will talk about all of the additional benefits of putting a house into a trust.

Putting A House Into A Trust – What Are The Benefits?

Avoid Probate

As mentioned earlier, one of the biggest advantages of putting a house into a trust is that, unlike a will, a living trust allows you to avoid probate court. There are three main reasons why this is important.

First, probate can be very expensive.

Probate is the legal process through which the court ensures that, when you die, your debts are paid and your assets are distributed according to the law. Legal fees, executor fees, inventory fees (county taxes), and other costs have to be paid before your assets can be fully distributed to your heirs.

If you own property in other states, your family could face multiple probates, each one according to the laws in that state. We usually expect about 10% of your estate to be eaten up in probate court through legal fees, inventory fees, court costs etc. For smaller estates, the percentage can be much larger – sometimes leaving little behind for your loved ones.

These costs can vary widely, but we’ve had clients who had to pay tens of thousands of dollars throughout the probate process. In general, probate is much, much more expensive than doing some simple estate planning in advance.

Second, probate can take a long time.

The standard probate process takes a minimum of 5 months to complete. However, over the past decade we’ve experienced that it generally takes 9 months to a year to resolve simple cases (and several years for contested cases). We once represented a client whose Probate lasted for 8 years.

Third, probate is public.

Your family has no privacy. Probate is a public process, so anyone can see the size of your estate (often what you actually owned), who you owed debts to, who will receive your assets, and when they will receive them. The process invites upset heirs to contest your will and can expose your family to greedy creditors and potential fraudsters.

How to set up a trust for an estate

Dynasty trusts have been a mainstay of estate planning for a long time.

They are a standard way to ensure family wealth is preserved and grows through several generations.

Avoiding taxes has been a strong incentive to create a dynasty trust since the beginning of estate and inheritance taxes.

Given that background, it would be logical for dynasty trusts to decline in use now that fewer estates are subject to the estate tax.

In fact, dynasty trusts still are useful to many families.

With few families needing to worry about the estate tax, more families can emphasize the non-tax goals of estate planning.

These goals include wealth preservation, creditor protection, multi-generation investment management, and value-based distributions.

The dynasty trust is the ideal vehicle to achieve many of these goals.

A dynasty trust is very flexible.

Its terms can be set to meet the goals of an individual estate owner.

The trick these days is to shift gears from emphasizing tax savings to considering broader goals for the family and the wealth.

The trust can be set up during the creator’s lifetime or in the will.

Most often it is started while the creator is living.

With the high lifetime estate and gift tax exemption, a large tax-free dynasty trust can be started early.

A married couple can jointly start one using their lifetime exemptions.

The high limit on the generation-skipping tax also makes dynasty trusts more feasible and useful.

Before the 2001 tax law began increasing the exemption, dynasty trusts of any value generally could be created only with life insurance or with property that was not worth much at the time but seemed likely to appreciate.

Now, with the higher exemption, other assets can be used to fund a dynasty trust.

Those with very valuable estates can increase the tax-free funding of the trusts during their lifetime with sophisticated tax-slashing strategies such as intentionally defective trusts, installment sales, shifting economic opportunities to the trust, and other shrewd moves.

Typically just one trust is created during the creator’s lifetime.

After that, the trust often is split into different trusts for each child of the family.

Other options are to maintain one trust with subtrusts for accounting purposes.

After a child dies, that trust or subtrust often is split into separate trusts or subtrusts for each of his or her children.

Or there can be one trust all family members share.

As I said, the dynasty trust is very flexible.

When you work with an estate planner who is experienced with the trusts, you can find the structure that best meets your needs.

When created, the trust is irrevocable, which produces the estate and gift tax savings.

Many states also allow the trust to be written in a way that the wealth is protected from creditors of the creator and of the children.

The amount of wealth that can be added to the trust after the creator’s death depends on the size of the estate and the tax law in effect at the time.

Your will should have several contingency clauses, so that additional wealth will be added only if the tax cost is reasonable.

Whatever happens with the tax law, once the trust is created during your lifetime it stands as a pool of assets exempt from further estate and gift taxes.

In next week’s edition of Retirement Watch Weekly, I’ll continue this discussion by telling you the next steps after the trust is created.

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Estate planning

Estate planning for your vacation home

Follow three steps to help ensure your vacation home is a haven, not a headache, for future generations.

Why estate planning should be a family affair

An open dialogue with family members can help you successfully craft your estate plan.

Generation-skipping tax: How it can affect your estate plan

The GST exemption allows you to “skip” a generation of heirs when handing down assets.

How to prepare your digital estate plan

Learn what’s included in a digital estate plan, how these assets are handled after you die and how you can prepare your data and accounts.

Setting up a trust

Why put land in a trust?

Farm and ranch landowners run several risks when they fail to make a transition plan.

Trust terms you need to know

Understanding common terms can help you feel more confident in your trust planning.

How to set up a trust

A trust requires careful administration, but setting one up is a fairly simple process.

What is a trust? Your guide to trust planning

Discover the process of setting up a trust and how it can help protect your family’s assets.

5 potential benefits of setting up a trust

When you create a trust, you set up ways to take care of the people you love when you’re no longer able to.

Preparing trust accounts

How to prepare for your trust planning appointment

What you need to know to make your meeting as successful as possible.

Choosing your trust situs

The state in which you set up your irrevocable trust will have an impact on your beneficiaries.

How to choose a trustee of a trust

Naming your trustee is a critical step in setting up a trust.

How to handle the emotions involved in trust planning

Learn four ways to navigate this essential part of your overall estate plan.

Trust planning: Questions for beneficiaries to ask

Find out what to ask your parents and the trustee to take your next steps with confidence.

Types of trusts: Choosing the right one for you

The kind of trust you select should reflect your unique wishes for how your assets are handled now and in the future.

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