Do It Yourself Living Trust

by David Carnes
You create a living trust by drafting a trust deed.

You create a living trust by drafting a trust deed.

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A living trust is a legal device that places assets you contribute under the control of a trustee.The trustee then transfers trust assets to your beneficiary as you directed in the trust deed. A trust can be created as revocable or irrevocable. In many cases, you can set up a trust on your own without significant legal risk.

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Parties

To create a living trust, you must appoint a trustee and at least one trust beneficiary. You may appoint multiple beneficiaries, and alternate beneficiaries in case beneficiaries die. If your trustee is an individual (yourself or another person) rather than a company, appoint an alternate trustee in case your original appointee resigns or dies. You may appoint a company, such as a bank or a trust company, as your trustee. You may also appoint a trust protector if you choose. A trust protector is entitled to fire the trustee without obtaining either a court order or beneficiary consent.

The Deed

The trust deed must name all the parties you appointed. It must instruct the trustee on how to distribute trust assets and outline any discretionary authority over trust assets, such as investment authority, that you wish to grant the trustee. It should specify whether the trust is revocable or irrevocable. You can unilaterally amend or revoke a revocable trust, but if the trust is irrevocable you permanently lose control over trust assets. If the trust deed fails to mention whether or not it is revocable, state law will determine the question. Different states apply different presumptions if the trust deed is silent on the issue: some presume it to be revocable, while others presume it to be irrevocable. The deed should be executed by state law, which varies from state to state. You execute the deed by signing it in the presence of a notary public or witnesses, who must acknowledge witnessing your signature and sign the deed.

Trust Assets

To the extent possible, retitle all trust assets in the name of the trustee. This is not possible for certain items such as household furnishings; however, you may retitle assets such as real estate, bank accounts, automobiles and share certificates. This is particularly important if the trust is irrevocable; an irrevocable trust insulates you from estate and income tax liability with respect to trust assets, and you could lose these benefits if a court determines that the trust is a sham because you retained legal ownership of trust assets.

The Special Needs Trust

A special needs trust is an irrevocable trust in which the beneficiary is disabled and the trust deed specifies terms that are designed to meet the beneficiary's special needs. If the beneficiary receives government benefits due to his disability, gifting him money directly might disqualify him for benefits that apply a maximum income cut-off. To ensure that the beneficiary does not lose eligibility for benefits, the trustee should purchase products and services such as home furnishings or medical care on behalf of the beneficiary, and avoid distributing cash to him. Consult an attorney if you are confused about eligibility rules for government benefits and how to word the trust deed to avoid the disqualification of your beneficiary.