How to Set up a Trust for an Estate

Co-authored by Clinton M. Sandvick, JD, PhD

Last Updated: February 11, 2023 References Approved

Everyone should have an estate plan. Trusts of different types are a popular way to plan for the transfer of your assets after your death. Whether you choose a simple revocable living trust or a very complicated irrevocable testamentary-style trust, with some upfront study and work, you can both make the best choice for your family and cut down on headaches of making your final plans.

Part 1

Part 1 of 4:

Hiring An Attorney

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Research possible candidates. Setting up a trust can be a complex task and an attorney should be hired if you have the means to do so. If you are going to hire an attorney, ask friends and family for recommendations first. Your parents, grandparents, and older adults should have some idea of who you could contact because these are the people that have most likely set up their own estates in the past. In addition, you can always contact your state's bar association and ask for a referral. For example, in California, you can search for qualified attorneys handling trusts and estates issues.
- When looking for possible candidates, try and find one that is certified in estate planning. In California, attorneys can obtain a specialization in estate planning, trust and probate law.^{[1]
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  Research source} These attorneys have taken extra educational courses and have passed certain credentialing requirements, so you know they have the knowledge you need.
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Interview potential attorneys. Once you have found a number of qualified candidates, contact them and set up an initial consultation. Find out if the attorney offers a free initial consultation or if you will have to pay. When you go to your initial consultation, bring any relevant documents with you. Some documents may include a will, a list of assets, a list of beneficiaries, and a list of possible trustees.
- Ask each attorney about their practice and their ability to successfully put together a trust for you. You may want to ask how long they have been practicing, how many trusts they have drafted, how many of their trusts have been challenged in court, how many attorneys will be working on your matter, and how much they charge.
- Find out if the attorney you are interviewing has liability and malpractice insurance. If a mistake happens, you want to make sure you can recoup your losses.
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Choose the right lawyer. After your initial consultations, look back and review each attorney's performance. Did you like the attorney's demeanor? Did they seem knowledgeable? Were they focused on you or were they distracted? These are some of the questions you will want to answer before choosing an attorney. Once you find the right choice, contact the attorney and let them know you would like to hire them. Get your fee arrangement in writing and make sure you feel comfortable with the cost of the attorney's services.
- Make sure you check each attorney's history of disciplinary action before you hire them. Check with your state's bar association and ensure every attorney is licensed in good standing.

Part 2

Part 2 of 4:

Exploring Your Trust Options

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Define your motives for setting up the trust. There are three main reasons to establish a trust. Depending on your priorities, you can tailor the trust to meet your needs.
- A trust helps you avoid or minimize probate.^{[2]
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  Research source} By sheltering your assets in a trust, you can be assured they will be distributed as you wish without intervention by the court. The terms of your trust can also be kept private. Once your will is placed into probate, it becomes part of the public record.
- You can exert control over your assets beyond your death. A well-structured and detailed trust directs exactly how it will be disbursed to your beneficiaries and how the body of the trust can be invested to keep the wealth intact and growing during your lifetime. Whether you create your trust to ensure income, education, or other benefits to your family, or intend for it to benefit a charity, you can dictate how your assets will be used.
- Finally, a well-constructed and managed trust can protect your estate from squabbles and wasting by your heirs. Trusts can be set up with tightly controlled payments. For example, you can instruct the trustee to only pay educational expenses or living expenses until your children reach a certain age.^{[3]
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Choose between a living trust or a testamentary trust. Both types of trust have advantages and disadvantages. For example, a living trust will have to be managed during your lifetime while a testamentary trust will not form until your death. This frees you of the management paperwork. However, there are tax and probate advantages to both. Consult with a tax professional and attorney before making a final choice.
- A living trust is established, funded, and managed during your lifetime.^{[4]
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  Research source} In a living trust, you are usually the primary trustee and can manage the trust assets with very little trouble. With some study, you won't even need an attorney to help you with the documents to add or remove assets from the trust fund (often called the trust corpus or Trust Res.)^{[5]
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- A living trust is not subject to probate after your death.
- A living trust is also a good way to finance your long term health care needs. If you become unable to make your own decisions, trust responsibility flows seamlessly to your alternate trustee.
- A testamentary trust does not come into effect until your death. It is triggered by your will and is subject to probate. This type of trust is common for someone with young children or heirs that are disabled. Under a testamentary trust, the assets of your estate are paid out according to your instructions. For example, a testamentary trust is often used to set up income and educational funds for children until they reach the age of 21.^{[6]
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- Unlike a living trust which can be revoked or amended with ease, a testamentary trust is irrevocable once your will has passed through probate. Once triggered, the provisions cannot be changed without a court order.^{[7]
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Choose between a revocable and irrevocable trust. Your tax professional can help you decide if your trust should be revocable or irrevocable. Tax consequences and estate preparation are your two main considerations in choosing between the two types.
- In a revocable trust, you retain full ownership of the assets during your lifetime. You can sell your property or use it for collateral for a loan. You also have the benefit and tax responsibilities for any income earned by the trust. The trust can also be dissolved at any time with minimal tax repercussions. ^{[8]
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- If you choose an irrevocable trust, once you transfer an asset to the trust, you effectively no longer own it. One of the main benefits is that you personally no longer have any tax liability resulting from the value of the asset or the income it generates.
- If you place your assets in an irrevocable trust, the body of the trust may not be counted as an asset for Medicaid applications for nursing home care. You will only have to report any income that your draw from the trust.^{[9]
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- Your irrevocable trust may be subject to the Medicaid 60-month "look back" period. This means if your trust was formed less than 5 years before your need for nursing home care, you may incur a waiting period before benefits will be paid.^{[10]
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Part 3

Part 3 of 4:

Establishing Your Trust

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Catalog your assets. You are not required to transfer all of your assets into your trust. During the planning phase, separate out your assets into one of these categories.
- Real estate can include your residence, business property, vacation homes, or any real estate where you own a full or partial share.
- Financial accounts are your checking, savings, money market, and certificates of deposit. These are your liquid assets that could be converted to cash with little difficulty. If you hold any stocks, bonds, or other investments, these can also be considered financial accounts.
- Tangible property is the items you want to transfer via the trust. Typical tangible property includes furniture, art, antiques, and collectibles. This list also includes vehicles, boats, and trailers.
2
Select the trustees. Your trustee is the person or company that will tend your assets and see that your trust instructions are followed. Since a trustee has a fiduciary responsibility to honestly manage your money, you must put some thought into who you choose.^{[11]
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- In a revocable living trust, you will likely be the first and primary trustee. This gives you the power to manage your own assets. You will also need to name one or more alternate trustees. If your assets are limited to your residence, personal property, and basic financial accounts, consider your spouse, a sibling, or adult child as the alternate trustee. In a straight-forward living trust, the responsibilities and level of trust will be similar to being an executor for your will.
- If you have a high value living trust or an irrevocable trust that will require hands-on management to maintain, a professional corporate trustee, financial professional, or attorney might be a better choice. Remember, an irrevocable trust owns your assets, so your trustee will have to exercise a higher degree of attention and professionalism.^{[12]
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Name the beneficiaries. The beneficiaries of your trust are similar to the heirs in your will. These are the people or organizations who will receive your assets when you die. However, you need to take some care in how you name your beneficiaries.^{[13]
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- List your beneficiaries by their full name and relationship. Instead of "Bob Smith," you will list "Robert James Smith: son." Do this to avoid any confusion.
- If your children are young when you form the trust, you should designate a payee until they are of legal age. This can help preserve the assets and ensure a smooth transfer.
- Keep your beneficiary list up to date. If you have additional children or re-marry, you need to change the list. If your ex-spouse is still listed when you die, your current spouse may either be disinherited or forced to challenge the trust in court.
- If a beneficiary dies before you, you can choose whether the inheritance flows to his heirs, or is re-divided among the living beneficiaries.
- If you name an organization or charity as a beneficiary, you must be specific. Don't say "Establish a scholarship at State University," or "Use it to help homeless animals." Instead say "The [name of scholarship fund] at [full name of school] located at [address] or "[Name of non-profit organization], Federal number [EIN], located at [address.]"
- Most charities have a process for receiving your donation. If you plan to name a charity as a beneficiary, contact the organization when you are establishing the trust. This can help you maximize the tax benefits and see that the charity receives your bequest with a minimum of disruption.^{[14]
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Create the trust. There are do-it-yourself forms to establish your trust. However, you should strongly consider consulting an attorney because of the subtleties in the different types of trusts and the different tax consequences.
- Forms for creating a living trust can be found from legal document providers. Expect to pay up to $100 for a complete forms package.^{[15]
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  Research source} Revocable living trusts are easy to amend and you during your lifetime, you can amend and correct errors as needed.
- Even though do-it-yourself forms are available for creating irrevocable trusts, you should consult with an attorney. Remember, with an irrevocable trust, you are transferring actual ownership of your property.
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Look into professional trust management firms. Most banks and brokerage companies have trust management financial products available. If your assets are heavy in cash, stocks, bonds, or other financial instruments, a professional manager may be better qualified to invest the funds to generate the best income for your trust.^{[16]
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Part 4

Part 4 of 4:

Transferring Assets Into Your Trust

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Issue deeds for your real estate. To transfer real estate to your trust, you will need to deed the property into the name of your trust. Consider consulting with an attorney to make sure the deed is properly drawn up and recorded.
2
Open or rename your financial accounts. For your bank and brokerage accounts, you need to first contact the the financial institution and ask about local procedures. If there are specific forms and document requirements, you must follow them to properly move your accounts into your trust.
- Some banks will allow you to rename your existing accounts. Others will require you to open new accounts and close the old after the funds are transferred. Have a set of your trust documents ready to give to your bank.
- Your trustee and alternate trustees will have to be on the signature cards.
3
Assign your personal property to your trust. Your personal property can be transferred to your trust by creating a detailed inventory, consider including photos, and attaching it as an addendum to your trust documents.
- Small valuable property, such as jewelry, can be stored in a safe deposit box that is in the name of the trust.
- Vehicles have to be titled and registered in the name of your trust. The first step is to add your trust as an additional insured to your auto insurance. Many states will not change title or registration without proof of insurance. Follow your local county procedures to execute the title transfer.