Although a Last Will and Testament will likely remain the foundation of your estate plan, as both your family and your estate grow, so will your estate plan. Additional estate planning tools and strategies will be incorporated into your plan to ensure that all your estate planning goals are met. One of the most common tools is a trust. If you decide to include a trust in your estate plan, you should work with an experienced trust attorney during the creation of the trust. It may help, however, to learn more about the five steps involved in creating a trust ahead of time.
- Define your trust purpose. Although it may seem like an obvious step, it is important to understand that defining your trust purpose with as much specificity as possible will greatly increase the success of your trust. Narrowing down your trust purpose and goals is a critical first step given that trusts have evolved to the point where there is now a specialized trust to help meet almost any estate planning goal. Every trust must have a trust purpose that can ultimately be referred to by the Trustee, or even a judge if necessary, when making critical decisions relating to the trust.
- Decide on the type of trust you need. All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust, activates during the Settlor’s lifetime. Living trusts can be sub-divided into revocable and irrevocable living trusts. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time and for any reason. An irrevocable living trust, on the other hand, cannot be modified or revoked by the Settlor at any time nor for any reason once active. Testamentary trusts are always revocable because the Will that triggers activation is always revocable until the Testator’s death. To a large extent, your trust purpose, determined in step one, will dictate which type of trust you need to create.
- Choose your Trustee. Given the importance of the duties and responsibilities your Trustee will have, choosing your Trustee should be done with care. Your Trustee is responsible for managing and investing trust assets as well as administering the trust. The duties and responsibilities of a Trustee are numerous and diverse, requiring you to spend a considerable amount of time deciding who to appoint as your Trustee. Ideally, your Trustee should have a legal and/or financial background to ensure that he/she is capable of administering the trust successfully. Depending on the size and complexity of your trust, choosing a professional Trustee may be your best option.
- Draft the trust agreement. In the internet age, it can be tempting to try and go it alone using DIY legal forms found online. In the long run, doing so is likely to cost you and your loved ones a considerable amount of time and money. Instead, allow your estate planning attorney to draft the trust for you. As the Settlor of the trust, however, you will decide on the terms used to administer the trust. You will use those terms to decide when assets can be distributed, how assets should be invested, and how much discretion you want your Trustee to have, among other things. As the Settlor, you can include any terms you wish as long as they are not illegal, impossible, or unconscionable.
- Fund your trust. Every trust must be funded. You can use almost any type of assets to fund your trust; however, the trust purpose and type of trust created may dictate the type of assets you use. Then you must actually convert the assets into the name of the trust. This can be as simple as transferring cash into the trust or as complex as re-titling real property into the name of the trust.
Contact Indianapolis Trust Attorneys
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns about creating a trust, contact the experienced Indianapolis trust attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.