How to Set Up a Trust
Setting up a trust can help you manage and control your estate even after you pass away. Trusts are legal structures that hold assets and contain detailed instructions for how you want those assets distributed to your beneficiaries. But, how do you create a trust?
This article walks you through how to establish and fund your trust. We also include answers to commonly asked questions.
Creating a Trust
Creating a trust can be pretty simple or complex—it just depends on what type of trust you make and your specific goals. But, mastering the basic steps isn’t difficult. So, here’s a quick breakdown of how to set up a trust.
Not all trusts are created equal. The kind of trust you choose will affect your control and protection of assets.
- The most common type of trust is a revocable trust. Meaning, you can update or cancel the trust at any point during your lifetime. Revocable trusts allow you to maintain ownership of your assets while you’re living. However, they can’t protect your assets from creditors.
- In contrast, irrevocable trusts protect your assets from potential litigators. However, these types of trusts require transferring ownership of your assets to the trust. In other words, you’d have less control. Although irrevocable trusts are typically permanent, you can make updates. But, it’s a lot harder and often requires third-party approval, such as a court judge.
- Testamentary trusts are created through a will and won’t go into effect until you (the creator) pass away. So, the trust itself isn’t fully completed or funded until after death. These types of trusts are great for when your beneficiary is under the age of 18, or you’re making a charitable donation. However, testamentary trusts won’t avoid probate—the legal process to authenticate the trust.
Typically, people create trusts for estate planning purposes. However, you can use them to accomplish a variety of other goals. For example, an irrevocable business trust can help protect your assets from company debts. Or, a revocable special needs trust can provide financial assistance for loved ones with costly medical needs.
Your trust agreement is the legal document that designates the grantor, trustee, successor trustee, and beneficiaries of the trust. (For a breakdown of each of these roles, check out our Trust vs LLC page.) Trust agreements must also indicate the type of trust you’re creating and a complete list of assets placed inside the trust. You may also include specific provisions you wish the trustee to follow. For example, you may state that your beneficiaries won’t get their inheritance until they reach a certain age.
Most states require you to sign your agreement in front of a notary. Even if your state doesn’t require notarizing your document, signing in front of a third party can help prevent future legal action. Some states, like Florida and Washington, also require you to sign in front of at least two witnesses.
You can draft a trust agreement yourself, purchase estate planning software, or hire an attorney. It just depends on how complex your trust is and what you want your trust to accomplish.
The chart below explains how to transfer different types of assets.
|
Type of Asset |
Transfer Process |
| Cash | Create a new bank account OR register an existing account in your trust’s name. |
| Real estate—like a home or rental property | Create a new property deed in your trust’s name and file it with your county recorder’s office. |
| Stocks/bonds | Re-register each stock or bond in your trust’s name. |
| Life insurance policy/401K/IRA | List your trust as the beneficiary. The funds will transfer after you pass away. |
| Cryptocurrency/NFTs | You can’t transfer ownership of your crypto/NFT to your trust. However, you can include instructions and passwords for your trustee to gain access after you pass away. |
| Intellectual property (IP) | Assign any relevant IP rights to the trust. For a patent, for example, update the transfer with the USPTO and include any rights and responsibilities in the trust agreement. |
The Bottom Line:
Trusts are powerful estate planning tools. You don’t need to consult an attorney or financial advisor. However, seeking professional help can help ensure your trust fulfills your specific goals and follows your state’s trust laws.
Frequently Asked Questions
It depends. If you choose to write an agreement yourself, it will cost you little to no money. However, you can purchase estate planning software for around $70. Attorney fees average between $100 and $400 an hour.
No. You can write a trust agreement yourself, purchase estate planning software, or hire a professional such as an attorney. It just depends on how complex your trust becomes.
Maybe. Some states, including Alaska and Hawaii, require trustees to register the trust. However, this only applies if the trustee resides and/or conducts business within the state.
If you need to register your trust, you’ll need to do so with your local court. Although requirements will vary between states, you’ll likely need to include the date you created the trust and the name and address of each trustee. These records are for the court only and won’t be made public. These types of filings typically don’t require a filing fee.
A living trust is any trust created during the grantor’s lifetime. Any kind of trust, except a testamentary trust, can be a living trust. A testamentary trust legally doesn’t exist and isn’t funded until after death.
Trusts are great tools for estate planning. Plus, they’re cost-effective and easy to maintain.
A popular alternative is to form an LLC. LLCs require a bit more annual maintenance; however, they’re perfect for protecting your assets from any business-related dealings.
Now that you know how to create a trust…