Trusts are often misunderstood. Many people think they are complex legal documents only for the wealthy. That is not true. A trust is simply a way to organize and pass assets to a third party. Generally, you are the “grantor” or “settlor,” and you create a trust for a third party “beneficiary.”
How Does a Trust Work?
You will first determine which assets you wish to include. Next, you will consider who you want to pass them to and if there are any restrictions on the transfer of assets. Some people opt to create age restrictions (i.e., the beneficiary must be 21 years old) or other restrictions to have more control.
You will also need to designate a trustee. This person will be responsible for looking out for the best interests of the trust. If you have a revocable living trust, you can be the trustee while you are alive. You will need to appoint a successor trustee, however, for when you pass away. This can be a lawyer, financial institution, or a trusted individual.
The location of the trust, as well as information on the grantor, trustee(s), beneficiaries, and assets, are all included in the trust document. You will receive a copy once it is fully executed.
In order for a trust to work properly, it must be funded. You can fund a trust by titling and transferring assets into it. This may include your primary residence, other real property, or your vehicle. Trusts can also be made to transfer life insurance policies or retirement funds.
With a revocable living trust, you can generally modify the trust during your lifetime. However, once an asset has been disbursed to the beneficiary, the beneficiary owns the asset. Therefore, you cannot recover any disbursed assets.
Have More Questions?
If you have more questions, or would like to discuss setting up a trust, contact a local attorney today.