How to set up a trust

Setting up a trust is one way for people to manage their assets both throughout their life and after their death. Whether you want to learn how to set up a trust or have recently become the beneficiary of one, these steps can help you understand their purpose and what they can mean for your financial future.

Setting up a trust: 5 steps for grantor

The exact process for setting up a trust will vary based on what assets you want to include in the trust and who is set to receive the assets, but there are generally five key steps.

1. Decide what assets to place in your trust. If you’re contemplating setting up a trust, you likely already have an idea of what assets you want to include. You can include anything from cash to real estate, stocks, bonds, investments and business interests.
2. Identify who will be the beneficiary/beneficiaries of your trust. You can set up your trust so that any number of people receive your assets, from children or your spouse to a foundation or charity that you support.
3. Determine the rules of your trust. One of the benefits of a trust is that you can set parameters for how you want the funds or assets to be distributed. You could, for example, set up a trust for your grandchildren to be given to them when they’re ready to go to college. Or you could set up a trust for your child that they receive at the time of your death. You could choose to set up a trust to go to your favorite charity in separate installments over several years. It’s good to start thinking of these parameters now and talk to a qualified estate planning attorney or your trustee about how they can be executed as you wish.
4. Select your trustee or (trustees). Perhaps the most important step of the trust process will be choosing your trustee. While it’s possible to choose a friend or family member to manage your trust for you, choosing an unbiased third-party trustee (like a bank) has several benefits.
   For one, professional trustees are not tied into family dynamics and can objectively administer your trust in the best interest of the beneficiaries, subject to the terms of the trust. If the trustee is a financial institution or bank, their trust administrators will also have experience dealing with family dynamics that can arise during the process. While your trust administrator cannot draft your trust document for you, they should be able to recommend several estate planning attorneys in your community who can officially draft it for you.
   If you select and meet with a professional trustee, bring up any questions you may have about the trust administration process and how it might work. Feel free to ask questions about possible drafting options, potential tax implications and other issues before you meet with your attorney to save time and cost in the drafting process.
5. Draft your trust document with an attorney. When you meet with your attorney to discuss drafting the terms of the trust document, consider creating a power of attorney for any property or assets held outside of your trust. If you become disabled or unable to make decisions regarding these assets prior to your death, this person will be able to legally manage the assets for you. You could choose a child, spouse or other person who can have legal rights to handle these assets outside of the trust. A healthcare power of attorney may also be advisable; this person would be able to make medical decisions on your behalf if you can’t make them for yourself.

Setting up a trust: 3 steps for beneficiaries

In an ideal situation, beneficiaries would understand the terms of a trust prior to the death of the grantor. But in many cases, those financial discussions don’t happen. These steps can simplify the process so it goes as smoothly as possible.

1. Prepare for your trust meeting. If the grantor’s trust goes into effect upon the grantor’s death, the trustee will need to have the death certificate to start the administrative process. The trustee may have other requests or questions for you if additional assets need to be gathered. The trustee will typically work closely with you, the grantor’s attorney and the grantor’s other advisors (such as a tax accountant) to finalize funding the trust and start the administrative process.
2. Meet with the trustee (or trustees). The trustee will contact you to set up a meeting to go over the details of the trust documents. During this time, it’s important to understand your rights when it comes to these assets. Be prepared to ask any questions you may have. What stipulations are there regarding when you will have access to the assets? Are there rules around what you can do with the assets? What is the process for requesting a distribution from the trust? Are any distributions automatic?
   Ask the trustee to explain the details of the trust and what the provisions are for who receives the assets and how they can be used. Your trustee should help communicate why the trust was set up the way it was and will need to administer the trust in accordance with the grantor’s wishes.
3. Expect to wait for assets to be distributed. Every trust is unique; that’s why it’s important to ask what you are entitled to within the trust. If assets will be distributed to you, it could take anywhere from six months to two years for them to be distributed. Or, if there are age provisions around distribution, you may need to wait until you reach a certain age to receive funds from the trust. The trust may be a lifetime trust for you with other provisions applicable at your death. Talk with the trustee about these details so you know what funds you can use and when they become available.

Whether you’re the grantor or beneficiary of a trust, knowing your specific role and what you can expect helps everything run more smoothly and ensure a more secure financial future for everyone involved.

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