How to Set Up a Living Trust Fund

By Tom Streissguth

A trust can be a solid, safe way to send your assets where you want them to go. The grantor -- the individual who creates the trust -- places cash, investments and property under the control of a trustee, who manages the assets for the benefit of another individual or an organization. A "spendthrift" trust, for example, grants money or other assets to a minor, with the grantor setting the terms of disbursement. A "living trust" means simply that the grantor is still alive.

A trust can be a solid, safe way to send your assets where you want them to go. The grantor -- the individual who creates the trust -- places cash, investments and property under the control of a trustee, who manages the assets for the benefit of another individual or an organization. A "spendthrift" trust, for example, grants money or other assets to a minor, with the grantor setting the terms of disbursement. A "living trust" means simply that the grantor is still alive.

Living Trust Basics

A living or "inter vivos" trust is one that goes into effect while the grantor is still alive. The grantor has one or more purposes in mind: to protect assets from estate taxes, to allow the assets to pass to heirs without going through probate court, or to grant money to another person or organization on his own terms. A trust must name a trustee, who is the individual responsible for managing the assets and disbursing them to the beneficiaries, according to the terms of the trust document.

Protect your loved ones by a legally binding will. Make a Will Online Now

Setting Up a Trust

A grantor sets up a trust by signing a document that establishes it. State laws govern trusts and spell out the rights of the grantor, as well as trustees, beneficiaries, and creditors. In Arizona, for example, the law gives creditors of a grantor the right to access the trust for the repayment of debts, as long as the trust is "revocable" -- meaning the grantor can change its terms, or simply revoke it. In addition, Arizona allows the grantor to set up a trust without notice to beneficiaries. However, the law does require the trustee to respond to a beneficiary's request for information about the trust.

Stipulations and Conditions

While drawing up a trust, the grantor names his trustee; a trustee can be an attorney, a bank, a trust management firm or a responsible relative or friend. It is also possible for a grantor to also act as his own trustee. The trust document may include stipulations, which are conditions and instructions to the trustee on how the cash, investments, property are to be invested and disbursed. A trust may have the sole purpose of paying medical bills for a beneficiary, for example, or for meeting operating costs of a charity. A trust may allow a younger beneficiary to meet educational expenses, or dole out money slowly and regularly to that same beneficiary to avoid careless overspending.

Revocable and Irrevocable

The grantor also must decide whether to make a trust revocable or irrevocable. A revocable trust can be changed or revoked by the grantor at any time; that means he can name a new trustee, add or remove beneficiaries or add new stipulations. The law places much tighter restrictions on irrevocable trusts; once they are created, the grantor may not change their terms. This allows an important tax advantage: earnings in a revocable trust are taxable to the grantor, while an irrevocable trust pays no taxes on money it disburses, and taxes on retained earnings are paid by the trust, not the grantor or trustee.

Protect your loved ones by a legally binding will. Make a Will Online Now
How Does a Living Trust Protect Assets?

References

Related articles

Does a Living Trust Affect Credit?

With a trust in place, you can pass your estate to your heirs outside of probate court. A "living" trust is created while a grantor of the trust is still alive. Once the trust is in place, a trustee manages the assets per your instructions. A grantor can name himself as trustee, and can transfer any property he wishes to the trust. Although a living trust can be useful in estate planning, it also carries a few implications for the grantor's credit.

Taxes & the Advantages of Living Trusts

A living trust is a document that a person creates while he is still alive, which enables him to financially provide for the beneficiaries he names. The creator of the trust, or grantor, takes some of his property and gives it to a third party, known as a trustee. The trustee, a person chosen by the grantor, manages the property and distributes it to the beneficiaries, subject to terms outlined in the document that established the trust known as a trust agreement. A trust, if structured appropriately, can protect assets from creditors and can allow for assets to be transferred quickly without having to go through probate. What effect the trust will have on taxes depends on how the trust is structured.

California Irrevocable Trust Laws

An irrevocable trust is an estate-planning tool designed for the long-term management of assets, which are permanently transferred into the trust. There are several types of irrevocable trusts, but the common denominator is that the settlor – the person who creates the trust -- gives up control and ownership of his property; however, California law does provide for modification of an irrevocable trust under certain circumstances.

LegalZoom. Legal help is here. Start Here. Wills. Trusts. Attorney help.

Related articles

The Difference Between a Grantor & a Beneficiary

Grantor is the legal term for a person who creates a trust, and beneficiaries are people named by the grantor to ...

Can I Pay Medical Expenses From an Irrevocable Trust?

A trust is a method of placing assets under the control of a trustee, for the purpose of passing these assets to ...

Is a Living Trust Liable or Subject to Probate?

A living trust holds assets that are managed by a trustee for intended beneficiaries. Also called a revocable trust, it ...

How to Get Notified if You're an Heir to a Trust

A trust is a legal and financial structure that holds assets, and pays beneficiaries, according to the instructions of ...

Browse by category