Creating a Trust
Key Reasons for Creating a Trust
Creating a trust offers many benefits to both you and your beneficiaries. These benefits include:
One of the main benefits of creating a trust is that you can decide what people get which of your assets. Not only is this empowering, however, it allows you to ensure that if you had children in multiple marriages, they will get some of your assets.
If you create the proper trust, this account will protect your assets from your beneficiary’s creditors. Furthermore, placing assets into a trust before they go to your beneficiaries also offers significant tax benefits.
Privacy and Probate Savings
Another benefit to creating a trust is that the assets and the dollar amount in the trust will not become public record. This may seem obvious. However, it is a benefit as if your assets go through probate, they will become part of public court records. In addition, the court costs can equal up to 10 percent of your assets. When combined with attorney fees, your beneficiaries will receive much less than the total value of your assets.
State Estate and Inheritance Taxes
Currently, 17 states and the District of Columbia have some type of estate or inheritance tax limits that are lower than the federal $11.58 million. If you live in one of the states that has a lower estate or inheritance tax limit, placing your assets in a trust could save your beneficiaries a lot of money.
Trusts also allow you to decide who will handle and who will receive your assets if you ever become incapacitated.
Certain types of trusts allow you to give your assets tax-free to your favorite charities.
There are multiple benefits to setting up a trust, however, to receive these benefits, you must understand how to properly set up the trust.
How to Set Up a Trust
Typically, creating a trust is a two-step process that includes:
Creating the Trust Agreement
The person who creates and funds a trust is called the grantor. The grantor creates the trust by signing a legal document that designates the grantor, trustee, and beneficiaries. Additionally, the initial trust document states exactly how the trustee will manage and distribute the assets within a trust. The largest and most important part of this step is deciding exactly who will go in what positions and what assets you will include in the trust. In most cases, you can name as many trustees and beneficiaries as you see fit. However, you should note that a trustee does not receive any assets from the trust unless you also list them as a beneficiary. Additionally, a beneficiary will receive assets from the trust yet does not have any power on how the trustee will manage the assets while they are in the trust.
Funding the Trust
Funding the trust occurs when the grantor places their own assets into the trust. How you fund the trust and what you fund the trust with depends entirely on the type of trust you are creating. However, you can typically fund most trusts with the following assets:
- Real estate: If the grantor wants to fund a trust with real estate, the grantor will execute a deed to transfer the property to the trust.
- Personal property with title document: Assets such as vehicles, boats, RVs, airplanes, and mobile homes will have a title document. If the grantor uses one of these assets to fund the trust, the grantor must simply change the name on these title documents to the trust. A grantor can take a similar action to transfer stocks and bonds into a trust.
- Other personal property: If any other property is put into a trust yet does not have a title document, the grantor must create a document describing the property that is going into the trust. For example, a grantor may place their household goods or collector items into a trust by simply filing a description of these goods.
These are the two steps that it requires to establish a trust. However, there are a few other things to know before setting up a trust.
Register the Trust With the IRS
In most cases, the trust fund must request a taxpayer identification number (TIN). This is required for trusts that will have income over the course of their life. For example, if you have a property that earns money from renters or stocks and bonds that earn money, you will have to register the trust with a TIN. Additionally, if you must file a TIN, you should also open financial accounts under the trusts name to pay for any expenses the assets within the trust incur.
How Long Does it Take to Set Up a Trust
In most cases, it will only take a few days to a week to set up a trust if you have already decided the assets that you will place into the trust and what people will act as a trustee or beneficiary.
Trust and estate laws are complex. This is so no matter the type of trust you decide to establish. As such, it is extremely important to have legal representation that can help you correctly set up your trust. The Antonoplos & Associates trust and estate lawyers have over 20 years of experience helping clients in DC, Maryland, and Virginia set up living trusts, testamentary trusts, irrevocable life insurance trusts, charitable remainder trusts, qualified domestic trusts, spendthrift trusts, special needs trusts, asset protection trusts, and Totten trusts. With this knowledge and experience, we can help with any legal issues that occur from setting up your trust.
Furthermore, Peter Antonoplos, founder and managing partner of Antonoplos & Associates has an LLM in Taxation from Georgetown University Law Center. With this knowledge, Peter can help you decide what is the best type of trust for your and your family and maximize the cost savings you receive from setting up a trust in DC, Maryland, and Virginia.
Contact our DC Law Office for More Information
Finally, for more information regarding creating a trust, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding trust and estate law, check out our blog.