A trust is a legal agreement you can use to specify how you want your assets managed and distributed if you become incapacitated or die. It can be an important part of creating an estate plan, caring for loved ones and ensuring your wishes are clear and followed.
Starting a trust can sometimes be difficult, but the general process might be easier than you expect. Here's an overview of the six steps you'll take.
Step 1: Determine Your Goals and Type of Trust
Trusts can serve different purposes, such as minimizing taxes or maintaining eligibility for government benefits. Your goals will affect what type of trust you should use.
A revocable living trust is a common option that people use as part of their estate plan to specify how and when they want their assets managed and distributed. It may be better than only using a will (or leaving no instructions) because you can pass on property and savings outside of probate—the default court-supervised process for distributing an estate's assets.
You can also use a trust to add requirements you wouldn't be able to impose otherwise. For example, you might leave everything to your child and have the trust distribute a stipend every year until they turn 25.
READ MORE: What Is a Trust?
Step 2: Select Your Trustee(s)
A trustee is the person or organization you choose to manage the trust. They will have a fiduciary duty to manage the trust on behalf of its beneficiaries. They might be responsible for making investment decisions, filing tax returns and distributing the trust's assets.
You can name yourself—or yourself and your spouse—as the trustee(s) of your trust. But you'll also want to name successor trustees who will take over the responsibilities. Consider choosing someone who:
- Will follow the trust's instructions
- Has the capacity to manage the trust's assets
- Can easily communicate with the trust's beneficiaries
Many people select family members or close friends. You may want to choose several successor trustees in case the first person isn't capable or doesn't want the responsibility.
The trustee won't need to do everything alone—you can instruct them to use the trust's assets to hire an attorney or financial advisor to help. You also can leave instructions for how much the trust will pay the trustee for their work.
You can alternatively or additionally name an attorney or trust company as the trustee. Although the trust will have to pay for the services, an impartial third party can sometimes help families avoid fights or hurt feelings.
Step 3: Choose Beneficiaries
You need to choose beneficiaries for the trust—the people or organizations that will receive the trust's assets.
You can name yourself as a beneficiary, and the trustee will manage the assets on your behalf if you become incapacitated. But you also want to name friends, family members or charitable organizations as beneficiaries for after you die.
Your trust documents should specify when and how much each beneficiary will receive.
Step 4: Create the Trust
Technically, you don't need to hire an attorney to create a trust. If you're making a revocable living trust and you have a simple situation, you may be able to do it on your own after researching the process and requirements in your state.
However, there are relatively low-cost online services that offer a helpful framework and general advice. You could look into estate planning attorneys who offer flat-rate packages for a basic estate plan.
For more complex situations, such as a blended family, beneficiaries with special needs or less common types of trusts, hiring an attorney is generally a good idea. Either way, you may need to sign the trust documents with a notary before they become legally binding.
Step 5: Fund the Trust
Funding the trust is an important step because the trust can only affect assets that are moved into the trust. You can do this by transferring ownership of accounts or assets to the trust, or by opening trust accounts and then transferring money into the accounts.
The process can depend on the type of asset:
- Bank and investment accounts: Contact your financial institutions to find out how you can transfer the assets to a trust account. You may need to close your accounts and open new ones in the trust's name.
- Real estate: If you own real estate, you may need to sign a new deed and record the transfer with your county. The process varies by county and state. You may want to contact your mortgage servicer and an attorney to ensure everything is done properly.
- Personal property: You can create a transfer document when drafting your trust that transfers ownership of tangible property, such as furniture and jewelry. It can be very broad and name all your possessions but clarify if you want items passed on to specific beneficiaries.
There are also assets you generally don't want to transfer to the trust. For example, transferring retirement accounts could count as a withdrawal and require you to pay taxes and penalties. Consider naming the trust as a beneficiary, or contingent beneficiary, of the accounts instead.
Step 6: Maintain the Trust
Regularly reviewing your trust and the beneficiaries on your accounts is an important part of maintaining a solid estate plan.
- Review your trust at least once every few years.
- Review your trust after major life events, such as a marriage, divorce, death or birth.
- Update exhibits that list your financial accounts and tangible property when you make changes.
- Make sure successor trustees will have access to the most recent copy of your trust.
You can generally make basic changes on your own, such as updating the list of your financial accounts. But you may wish to consult an attorney if you want to change the trustees or beneficiaries or make other significant changes.
Synchrony Makes Setting Up a Trust Account Simple
Once you create a trust, you can convert existing accounts into trust accounts or open new high yield savings accounts, money market accounts and CDs in the trust's name at Synchrony. It's an easy process that you can start by calling customer service or downloading the trust application form—we can mail you a physical copy if you'd prefer.
You can submit the form by mail or email, and the trust account may be set up within two business days. You can also specify how you'll fund the trust accounts on the form and initiate online transfers to the accounts after they're open.
READ MORE: What's the Median Retirement Savings by Age?
