The uncomplicated guide to creating a Trust
It’s a critical part of estate planning. But what is a trust, and who might need one?
A lot of us know that we really ought to create a will at some point — but we might not be asking ourselves whether we need to also create a trust. Trusts seem more complicated than wills, in part because trusts can be more open-ended than a standard last will and testament. Fortunately, there’s an easy and cost-effective solution.
Those who take out Haven Term, a term life insurance policy, also receive a $129 credit for trust services with the estate planning company Trust & Will as part of the benefits offered through the Haven Life Plus rider. Typically, the trust process costs $399 for individuals and $499 for couples, so this credit is a significant money-saver. It might also provide some initiative for those who are intimidated by the trust-making process, or have just been procrastinating. (Not, um, that we know anyone like that.)
That all said, many of us might need a trust as part of our estate planning but simply don’t know how to create a trust. That’s why we reached out to Patrick Hicks, head of legal at Trust & Will, to understand exactly what trusts are, how they work, and how long it might take to set one up. What we found out? That the trust-writing process is less complicated than most people realize. Here, Hicks tells us how to create a trust with some surprisingly simple steps.
How to create a trust: Start with these simple questions
What is a trust, anyway?
Simply put, a trust is a way to manage your assets and final wishes while you’re still alive. A will goes into effect after you die, while a trust typically goes into effect immediately, while you’re still living. Essentially, you can transfer assets to a trust fund at any point, and that trust will then transfer those assets to your beneficiaries in the future, typically after you’ve died. This allows you to decide that, say, your daughter will receive her inheritance when she is 25, instead of immediately upon your death. A trust also allows you to avoid the probate process, which means your family will have more control of the assets, rather than risking that the state might take over after you die—a messy solution that could mean your wishes are not fulfilled. Finally, a trust can help you reduce any state or federal estate taxes you might incur.
Think of a trust as a sort of third-party account for your assets—you transfer your assets to the trust, which in turn is transferred to your beneficiary or beneficiaries.
Who needs a trust?
Ultimately, this is a conversation you should have with your estate planning agent or attorney—everyone’s situation is different, and therefore so are their trust agreement needs. That said, a few common reasons to consider a trust include whether you own a business—you could write a trust document that outlines how you hope to pass your business down to your children, including how to divide the percentage of interest in the business.
You might also want a special needs trust to help provide for a loved one who might need long-term care. With a special needs trust agreement, you can set aside trust assets for a loved one without limiting their access to government benefits — which is one of the best ways to ensure your child or relative gets the financial support they need.
Another advantage is that you can use your own trust to determine what happens if you become physically or mentally incapacitated. “With advancements in modern medicine, that’s of growing importance for a large number of people,” Hicks explains. “Stats range, but up to two-thirds of people will experience a period of incapacity during their lifetimes. Having documents in place to handle that is incredibly important, and of growing importance each passing year.”
What type of trust might I need?
There are many different kinds of trusts, but the most common type is a revocable living trust. The key words here are “living”—it goes into effect while you’re still alive—and “revocable,” which means you can change your plans if and when the need arises. Essentially, a revocable living trust gives you more control and flexibility over your assets as you age and your situation changes.
“Trusts give you a lot of control over what you want to do,” Hicks says. “A trust is really a blank sheet of paper, and you can make it anything you want it to be.”
How complicated is it to create a trust?
Creating a trust is a lot like creating a will — in fact, Trust & Will starts off by asking you a lot of the same basic questions about your family and your goals. An estate planning attorney would do the same.
Since you can do a lot more with a living trust than you can do with a will — the process of writing your own trust document can be more complicated than the process of creating a will. Don’t let that stop you from beginning the trust-writing process, though. “The trust [process] has a few questions that some people might not have thought about before,” Hicks says, “but they’re not stumbling blocks.”
If you’re worried about creating a trust because you’re afraid it will lock you into something for the rest of your life (and beyond), keep in mind that with a revocable living trust, like what is sold through Trust & Will, you can change the assets included at any time. If you create a succession plan for your small business and decide you want to adjust the percentages of ownership, for example, you can rewrite such in a living trust. Getting the trust in place is the most important step; once your trust is set up, you can continue to adjust it as life goes on.
About Nicole Dieker
Nicole Dieker has been a full-time freelance writer since 2012, with a focus on personal finance and habit formation. In addition to Haven Life, her work regularly appears at Lifehacker, Bankrate, CreditCards.com, and Vox. Dieker spent five years as a writer and editor for The Billfold, a personal finance blog where people had honest conversations about money, and is the author of Frugal and the Beast: And Other Financial Fairy Tales.Read more by Nicole Dieker
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Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our editorial policy
Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.
Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.
Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.
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