A trust is a legal entity that holds assets and manages them in accordance with the wishes of a grantor or “settlor.” The grantor may be an individual, business, institution or charity. As a fiduciary, the trustee is bound ethically to act in the best interests of the beneficiaries.
A well-drafted trust can help preserve a family’s legacy and avoid unnecessary taxes and fees. In addition, the trust can protect assets from beneficiaries’ creditors and prevent disputes between spouses or children. Trusts can also be used to address specific goals, such as providing for individuals with disabilities or preserving generation-skipping tax exemptions.
However, trusts are complex entities with many moving parts. To make sure a trust is working as intended, it is important to work with professionals, including an estate planning attorney, tax planner and financial advisor. This team approach will ensure the best results for the beneficiary and the client’s family.
The first step in creating a trust is to sit down with an attorney with experience in setting up trusts. The attorney will review your goals and financial situation to understand the full picture. This information will then be used to create a document that is customized to your particular circumstances. This process can be time-consuming and expensive. However, there are now tools available to help reduce costs and streamline the process, such as an online tool called FreeWill.
Once a trust is created, the next step is to find the right trustee. Ideally, this person will have the right combination of skills and expertise, along with the necessary knowledge to effectively communicate with the beneficiary. Additionally, a corporate trustee can provide professional objectivity to decision making that is essential to protecting the beneficiary’s interests and preventing conflicts of interest.
Finally, it’s important to keep a close eye on how the trustee is performing their duties. The trustee must maintain accurate records of income and expense, as well as provide regular reports to the beneficiaries. This will provide transparency and avoid any potential fiduciary misconduct claims down the road.
The final step in a trust’s implementation is to distribute the assets according to its terms. This is an area where a trust’s flexibility can really shine, allowing the grantor to specify not just who will receive assets but how and when they are distributed. This can be particularly helpful in addressing a beneficiary’s special needs, such as ensuring that funds are available to pay for a child’s college tuition or medical care.
In addition, a revocable trust can be amended to address changing circumstances. For example, a family member may become involved in a charitable cause you support, or another grandchild may enter the picture. This flexibility can give your loved ones peace of mind that the resources you left them will be used to meet their specific needs and achieve your goals.