How to Create a Legal Trust

By David Carnes

A trust is a legal instrument that is useful for tax and estate planning. Under a trust arrangement, a trustee manages assets you transfer to the trust for the benefit of beneficiaries you select. You retain only indirect control over trust assets – the trustee must dispose of the assets as you direct in the trust deed that creates the trust. A trust is fairly simple to create, although it is prudent to have a lawyer look over the trust deed before you sign it.

A trust is a legal instrument that is useful for tax and estate planning. Under a trust arrangement, a trustee manages assets you transfer to the trust for the benefit of beneficiaries you select. You retain only indirect control over trust assets – the trustee must dispose of the assets as you direct in the trust deed that creates the trust. A trust is fairly simple to create, although it is prudent to have a lawyer look over the trust deed before you sign it.

Step 1

Appoint a trustee and an alternate trustee and obtain their consent to their appointments. The trustee need not be an individual – banks and trust companies often act as trustees for a small fee.

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Step 2

Select at least one beneficiary. The beneficiary might be a relative, a friend or a charitable organization. The beneficiary need not consent, and he doesn't even have to know he has been named a beneficiary of the trust.

Step 3

Draft the trust deed in duplicate. The trust deed should name the trust (the “John Doe Trust Fund,” for example), name the trustee and his alternate, name the beneficiaries, state whether the trust is revocable or irrevocable and instruct the trustee on how to distribute the trust assets. You might also list the initial assets of the trust. You may have the trustee distribute trust assets to beneficiaries in a lump sum or in periodic installments. You may give the trustee the authority to invest trust assets and distribute only profits to the beneficiaries, or you may allow the trustee unfettered discretion to distribute trust assets for the benefit of the beneficiaries.

Step 4

Sign the trust deeds, and have the trustee sign them, in the presence of a notary public. Keep one copy and deliver the other copy to the trustee.

Step 5

Transfer assets to the trust. If you donate cash, open a bank account in the name of the trust and deposit the cash into it. If you donate titled assets such as real estate or automobiles, change the name on the title to the name of the trust. If you donate untitled assets, transfer them to the control of the trustee – place jewelry in a safe deposit box, for example, and deliver the key to the trustee.

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Facts on Living Trusts in Pennsylvania

References

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Can an Heir Sell Property When the Title Is in a Revocable Living Trust?

Revocable living trust property generally cannot be sold outright by a beneficiary; the property must be first transferred to the beneficiary and placed in his name. However, if under the terms of the trust, the beneficiary has the right to claim trust assets for personal use, this is a simple issue of transfer. The key issue is the trust's restrictions on distributions. The trust creator's intent, whether there are multiple beneficiaries or the existence of a spendthrift clause can limit a beneficiary's ability to sell trust assets. Trust law varies by state so consider consulting an attorney if you wish to sell trust property.

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