Although your initial estate plan may consist of nothing more than a Last Will and Testament, as your estate grows and your family expands you will undoubtedly need to include additional estate planning tools and strategies into your overall plan. One of the most common additions to a comprehensive estate plan is a trust. Trusts were once used almost exclusively by wealthy families as a tool to shelter and pass down the family fortune. Over the years, however, trusts have evolved to the point where it is extremely common to find at least one trust in the average person’s estate plan. If you are considering the addition of a trust to your estate plan, you need to know where to begin creating a trust. The best way to get information about creating a trust that is specific to your needs is to consult with your New York estate planning attorney. In the meantime, however, the following trust basics may be helpful.
Elements of a Trust
Although trusts have become highly specialized over the years, all trusts begin with the same basic elements, including:
- Settlor – this is the person who creates the trust, appoints the Trustee, and determines the terms of the trust. A Settlor may also be referred to as a “Maker,” “Grantor,” or “Trustor.”
- Trustee – appointed by the Settlor, this is an individual or entity that manages and invests the trust assets and oversees the administration of the trust terms.
- Beneficiary – this can be a person, and entity (such as a charity), or even a family pet that receives the benefit of the trust. Beneficiaries can be current and/or future.
- Terms – created by the Settlor, the terms determine everything from how the trust assets are to be invested to how and when those assets are disbursed to beneficiaries. A Settlor may include any terms he/she wishes as long as they are not illegal or unconscionable.
- Funding – assets must be transferred into the trust to fund it. Almost any assets may be used, including cash, securities, and/or real property.
Creating a Trust – Things to Consider
As the Settlor of a trust, you have a number of important decisions to make when creating your trust. Among the most important of those decisions are deciding what type of trust to create, who the beneficiaries will be, and choosing a Trustee. Deciding which type of trust you need is best accomplished with the assistance of your estate planning attorney to ensure that you create the right type of trust for your needs. You likely already know who your beneficiaries will be as most people create a trust with the sole intention of providing for those beneficiaries. Deciding on your Trustee, however, may be more difficult. A common mistake is to simply appoint a spouse, family member, or close friend as Trustee without giving the matter due consideration. To avoid this mistake, take the time to learn what the duties and responsibilities of a Trustee are so that you appoint the right person to the job. Your Trustee should have at least basic knowledge of legal and financial terms and concepts, and preferably have previous experience in either field. In addition, you want a Trustee that will not have a conflict of interest throughout the administration of the trust. When a Trustee has a personal relationship with the beneficiaries it can become difficult to be objective. Finally, because the trust terms will guide the administration of the trust, care must be given to creating each term. To avoid problems in the interpretation of those terms, which can lead to costly litigation, it is always best to have your estate planning attorney create your trust terms for you. Sit down with your estate planning attorney and explain what you hope to accomplish with your trust and your attorney can take those objectives and turn them into trust terms that can be easily interpreted and administered.
Creating a trust can be an enjoyable process if you work closely with your New York estate planning attorney.
For more information, please download our FREE estate planning worksheet. If you have questions or concerns about creating a trust, or wish to get started creating one, contact an experienced estate planning attorney at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.
- “Last Will and Testament” Origin - April 1, 2021
- Do I Need a “Durable” Power of Attorney? - April 2, 2020
- Joint Tenancy Pros and Cons - March 31, 2020