A trust is an important estate planning tool that can give you peace of mind knowing that your assets will go to the right people when you pass on. At the very basic, a trust is a legal arrangement where the settlor transfers certain assets to the trustee to hold for the benefit of the designated beneficiary.
There are many benefits that come with setting up a trust for your estate. The most notable ones are that it can help you avoid probate and save your estate from certain taxes. However, for a trust to serve its intended purpose, your trust must be properly established.
Before you establish a trust, there are three basic questions you should ask yourself:
What are your intentions for creating the trust instrument?
It must be clear that you had the intention to create a trust, and that you planned to transfer the ownership of the assets or funds in your trust to a designated beneficiary. This validates the trust by clearly outlining the intention of the settlor.
What assets are you putting in the trust instrument?
You can set up a trust for different kinds of assets. However, your trust instrument must have a clearly defined subject matter, or recognizable assets, to be valid. In addition, there must be proof of asset transfer from the settlor to the trustee. Without the clearly specified trust assets, your trust will be declared invalid and all the assets therein will remain in the ownership of the settlor.
Who are the beneficiaries of the trust?
A trust instrument must clearly specify its beneficiary. If the trustee cannot identify the beneficiary, then they will have to return the assets in the trust back to the settlor (you, or your estate, if you’re no longer living).
Estate planning can be more complicated than you imagine. Working with a professional can help you get the estate plan you need.