What is a trust?
A trust is a legal entity to which an individual titles property and assets for the benefit of another. Every trust contains a grantor, trustee, and beneficiary. There are many different types of trusts to choose from. However, it is important to understand what your goals are before creating one. For example, if an individual is looking to protect their assets from creditors or debtors, they might establish an asset protection trusts. Asset protection trusts are also referred to as self-settled trusts. If an individual is looking to establish a trust to go to a certain charity, then they would establish a charitable trust. A trust document outlines when and to whom assets can be passed to.Understanding what you would like the trust to do for you is the first step in creating a trust.
Step 1 – Decide what trust type you need
A trust document is either Irrevocable or Revocable. An irrevocable trust is a trust that cannot be changed. When you create an irrevocable trust, you relinquish your ability to be able to alter, cancel, or modify the trust terms. A testamentary trust is an example of an irrevocable trust. The testamentary trust is not funded until after the creator of the trust has passed away. When the trust goes into effect, the creator is no longer alive. Therefore, the trust becomes irrevocable automatically at death of the grantor.
The second type of trust is a revocable trust. This trust is created while you are alive and can also be considered a living trust. The terms of this type of trust can be changed at any time. However, when the grantor of the trust dies the trust will become irrevocable. Both types of trusts are used as ways to protect assets from going through probate, and are also considered to be will substitutes.
Step 2- Contact an attorney
Working with an estate planning attorney helps you to create ways to protect your family and business wealth. An estate attorney is responsible for drafting the trust, and answering the questions about your estate. Every trust situation is different, and the estate attorney will offer guidance over complex issues involved with an estate plan. However, locating an attorney in the right trust jurisdiction might seem challenging. When selecting an estate attorney, it is important to understand that not all states are created equal.
Trust jurisdictions like South Dakota, Delaware, and Alaska give your trust an array of options and flexibility. For example, South Dakota doesn’t follow the rules against perpetuities, and therefore trusts can last forever. Also, there is no state income tax in South Dakota, this is a big benefit for both beneficiaries and grantors. These are just a few examples of how an outside trust jurisdiction can benefit your estate.
When selecting an attorney, here are a few questions to ask:
- What are my options for using a trustee?
- Can I change the governing law of my trust?
- What are my alternative options when creating my trust?
If you are looking to create a trust using an attorney in a top trust state like South Dakota you can check out the estate planning council of this state.
Step 3- Pick a trustee
The last but a very important step when creating a South Dakota trust is picking a trustee. The trustee has control over the trust and is responsible for the management of the assets. Therefore, this decision should be well thought out. There are three different types of trustees: Individual, Corporate, Bank.
- Individual: This can be a friend or family member. You can appoint multiple individuals to serve as trustee. They should be intelligent and capable of making complex decisions because they are responsible for managing the trust.
- Independent: These are trust companies that are not a part of banks. Wealth Advisors Trust Company is an example of independent, advisor friendly trust company. This type of trust company offers clients more flexibility with utilizing a corporate trustee plus being able to choose their own financial advisor.
- Bank: This trust department is responsible for administering, managing, and investing the trust assets. Every aspect of the managing the trust is done in-house.
When creating a trust, it is important to understand the steps that need to be taken. Be sure to take note of your assets and property to know what you would want to place inside the trust. Once you have decided what you want to happen, spoken with an attorney, and picked a trustee. You will be able to create a plan for your trust.