A family trust is created by a parent or parents for their family by placing property in a trust and naming family members as the beneficiaries. When the parents die, the property is not included in the probate estate and the surviving family members are able to use the property immediately. The requirements for properly executing a trust are defined by state laws, which vary. The Uniform Trust Code has been enacted in 23 states as of March 2012. As a result, the UTC represents a good basis to discuss how to properly execute a family trust.
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Choose the trustee. Trustees are responsible for maintaining the trust and distributing its assets in the manner defined by its terms. In a family trust, the parents are generally the initial trustees. Consider appointing a successor trustee for when the original trustee dies. The successor trustee should have a strong background in financial matters, be able to distribute the trust property impartially and have the respect of the creator of the trust.
Draft the trust agreement. The trust agreement sets the terms of the trust and identifies the trustees and beneficiaries. The trust can be structured so that the trustee is required to pay a set amount of cash annually or make whatever payments he deems necessary based on the circumstances. Consider what the beneficiaries' needs are, trustee’s ability to make good decisions for the beneficiary and total amount of assets in the trust when determining how much discretion to give the trustee in distributing trust property.
Create the trust. A trust is generally only created when the owner of the property declares he is holding the assets as a trustee or he transfers the property to another person to hold as a trustee. This transfer to the trust is generally made either through a deed or letter, depending on the property. The document generally must be submitted to specific authorities, such as a secretary of state or financial holding institution. That document should explicitly state the property is being transferred to the trustee in his capacity as a trustee.