Steps to Take When Creating a Trust for Your Estate Plan

When you decide to expand your basic estate plan, one of the estate planning tools you will likely consider adding to your plan is a trust agreement. Trusts are a popular addition to an estate plan in large part because of their versatile nature. You can construct a trust agreement to fit your unique needs and achieve your specific estate planning goals. While it is always best to work closely with an experienced estate planning attorney, the Essex Junction attorneys at Unsworth LaPlante, PLLC explain some common steps to take when creating a trust for your estate plan.

1. Decide on the Purpose of the Trust: The first step in creating a trust is to determine its purpose. Trusts can serve various functions, such as providing for minor children, managing assets for individuals with special needs, minimizing estate taxes, or avoiding probate. Clearly identifying the purpose of your trust will help you make informed decisions throughout the process.
2. Determine the Type of Trust You Need: There are several types of trusts to choose from, each serving different purposes. Trusts are broadly categorized as living or testamentary trusts with the former administered during your lifetime and the latter created through your Last Will and Testament and administered after your death. Furthermore, living trusts can be revocable or irrevocable. A revocable trust allows you to retain control over the trust assets and make changes to the trust agreement whenever you want and for any reason. Conversely, an irrevocable trust cannot be modified or revoked by the Grantor (creator of the trust) once the trust is established.
3. Select the Trustee: Choosing a Trustee is a critical decision when creating a trust. The Trustee is responsible for managing the trust assets and carrying out the terms of the trust. You may choose an individual, such as a family member or friend, or a professional Trustee, such as a bank or trust company. Consider the Trustee’s ability to handle financial matters, their understanding of your intentions, and their willingness to serve in this role.
4. Identify the Beneficiaries: Next, you need to identify the beneficiaries of your trust. Beneficiaries are the individuals or entities who will receive the benefits from the trust. They can include family members, friends, charities, or other organizations. Your beloved family pet can even be the beneficiary of the trust you create, and you can include both current and future beneficiaries. Clearly define each beneficiary’s share or the conditions under which they will receive their benefits.
5. Draft the Trust Agreement: The trust agreement is the legal instrument that outlines the terms and conditions of the trust. The trust agreement specifies the Trustee’s powers, the distribution of assets, and any special instructions. Working with an experienced estate planning attorney is highly recommended to ensure the trust agreement complies with state laws and accurately reflects your wishes. Once the trust agreement is drafted, it must be signed in accordance with state requirements. Typically, this involves signing the document in the presence of a notary public and witnesses.
6. Transfer Assets into the Trust: For the trust to be effective, you must transfer ownership of your assets to the trust. This process, known as funding the trust, involves changing the title of assets such as real estate, bank accounts, investments, and personal property to the name of the trust. It is crucial to ensure that all intended assets are properly transferred to avoid probate and ensure your trust operates as planned.
7. Open a Bank Account and Obtain a Tax Identification Number (TIN): A trust is a separate legal entity and, therefore, needs a separate bank account. If you have created an irrevocable trust, you will also need to obtain a Tax Identification Number (TIN) from the IRS. The TIN is used for tax reporting purposes and is necessary for the trust to operate as a separate legal entity. Revocable trusts, on the other hand, typically use the Grantor’s Social Security number until the Grantor’s death.
8. Administer the Trust: With the trust in place, the Trustee’s role begins. The Trustee is responsible for managing the trust assets, making distributions to beneficiaries, and complying with any ongoing legal and tax obligations. This may involve maintaining accurate records, filing tax returns, and ensuring that the trust operates according to the terms set forth in the trust document.

Can We Help You with the Steps Necessary to Create a Trust?

For more information, please attend one of our upcoming FREE webinars. If you are ready to incorporate a trust into your Vermont estate plan, contact an experienced Essex Junction trust attorney at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.