How to Create a Legal Trust

By Cindy DeRuyter, J.D.

How to Create a Legal Trust

By Cindy DeRuyter, J.D.

Trusts are estate planning tools, commonly used to help avoid probate, maximize estate tax exemptions, and control asset management and distribution during periods of lifetime incapacity and after death. State laws govern trusts, so your trust must comply with your state's specific requirements. Follow these steps to create, fund, and maintain your trust.

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1. Decide what type of trust you want to create.

There are two main categories of trusts: revocable and irrevocable. The most common type, the revocable trust, is a trust you can change or revoke during your lifetime. In contrast, when you create an irrevocable trust, you give up control of the trust's provisions and assets.

In most cases, people choose revocable trusts for estate planning purposes. Irrevocable trusts are most common in advanced estate tax and charitable planning scenarios.

2. Consider what you want your trust to accomplish.

Think about who should serve as the trustee, or the person who manages and distributes the assets in the trust. For revocable trusts, the trusts' creators typically serve as trustees during their lifetimes. However, the trust agreement should name one or more successor trustees to serve during periods when you are alive but incapacitated and after you pass away. You can name one or more people or professionals as trustees of your trust.

Consider also to whom, how, and when your trustee should distribute trust assets. You could leave assets to one or more named trust beneficiaries outright when you pass away. Alternatively, you can direct the trustee to manage assets inside trust for years after your death. This is sometimes a good option when trust beneficiaries are minors or are otherwise financially irresponsible.

3. Draft and execute the trust agreement.

The trust agreement is the legal document that formalizes the trust. Your agreement designates the trustees and successor trustees, names the beneficiaries and contingent beneficiaries, and formalizes your wishes. Trust agreements usually specify certain powers you want the trustee to have so the trustee does not need to get approval from the court to administer trust assets.

Trust law is state-specific and complex. Seeking professional guidance to draft or review your trust agreement can give you peace of mind knowing the language of the trust agreement is doing what you want it to do.

When your agreement is final, determine and fulfill the required legal formalities for a valid trust in your state. These usually include having disinterested adults witness your signature and signing before a notary public.

4. Fund your trust.

Your trust only works if you put something into it. After creating your trust agreement, determine what assets you want to flow through the trust when you pass away. When people create revocable trusts to avoid probate, it often makes sense to transfer title to real estate, bank accounts, and investments to the trust. Consider if you need to update beneficiary designations on life insurance, annuities, retirement accounts, or other assets to point them toward the new trust.

Trust funding decisions are situation-specific. Talk to your financial, tax, and legal professionals to understand the implications of transferring assets into trust before doing so.

When drafted appropriately, trusts are powerful estate and tax planning tools. You do not need a lawyer to create your trust agreement. However, if there are problems with the trust, those problems may not be apparent until after you pass away, at which point it is too late to make changes. Because of that, many people choose to work with an online service provider to create legal trusts. Alternatively, you may want to consult an estate planning attorney in your state.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.