A variety of benefits exist from establishing a family trust, according to "The Complete Book of Trusts" by Martin M. Shenkman. Basic benefits of this type of trust include avoiding estate taxes and protecting assets from creditors, depending on the method in which you establish such a trust. The initial step in creating a family trust is determining your ultimate objectives. For example, a family trust is ideal if you want to avoid most, if not all, of the probate process upon your death.
Step 1
Obtain a family trust agreement form. Although theoretically you can draft your own trust from scratch, you run the risk of making errors. A typical office supply store usually carries such forms, including those for different types of trusts.
Step 2
Choose between an irrevocable or revocable trust. An irrevocable trust cannot be terminated or altered, even by the person who creates it, known as the grantor. An irrevocable trust typically bestows more significant tax benefits on the grantor because she then loses permanent control over the assets placed in the trust. A revocable trust can be terminated and changed, leaving the grantor with less tax benefits because she retains ultimate control of the property in the trust.
Step 3
Pick a trustee. A trustee is an individual or a financial institution designated to oversee the affairs of the trust.
Step 4
Name the specific beneficiaries of the trust. These are the individuals who obtain benefits from the trust. For example, a trustee can divide the earnings made from the investments included in the trust amongst the beneficiaries. The grantor can name himself as a beneficiary.
Step 5
Sign the trust agreement. Each state maintains specific laws about how a trust agreement is to be signed. You can access the laws of your state using the Web site maintained by your state's legislature. For example, the law may require that you sign the trust document in front of a notary public and a witness or two.
Step 6
Deliver the trust agreement to the trustee. She must possess the original document in order to undertake her duties.
Tips and Warnings
- Due to the importance and legal complexities associated with creating a family trust, considering hiring a lawyer. Some attorneys specialize in creating trusts. The American Bar Association maintains resources to assist you in finding a lawyer to establish a family trust.
Things You'll Need
- Family trust agreement form
References
- "The Complete Book of Trusts"; Martin M. Shenkman; 2002
- Investopedia: Establishing A Revocable Living Trust
- Investopedia: Irrevocable Trusts
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