It’s Time for a Trust—Trust Me.

Since we already touched on the uncomfortable truth (your impending demise) at the start of this newsletters, get right into what a trust is and why it’s important. 

Without tying you in knots with all sorts of legalese, think of a trust as a living, breathing document that allows one or multiple individuals (commonly known as a trustee) to manage your assets (in accordance with your stated wishes) following your death. 

As the trustor (i.e., the creator of the trust), you get to determine what assets go into your trust, who gets to be in charge of your trust, who your trust will benefit, and how your trust is to be managed. 

Most commonly, a trust is used by independent real estate investors to hold assets for beneficiaries (e.g., your kids) while also minimizing the exposure of said assets to things like estate or gift taxes. 

Establishing a trust is essential for three reasons:

• It allows you to determine how all your assets—your money, your property, your investments…heck, even your body and your organs—will be managed after your death. 
• It helps you bypass costly probate expenses (more on that later) and complicated estate taxes. 
• It protects your assets (and the people you want to benefit from those assets) from creditors. 

Put plainly, if you want to make sure your loved ones enjoy your hard-earned money and not attorneys, probate court, or the IRS, you’re going to want to take the time to set up a trust…TRUST ME. 

Why do I want a trust instead of a will? 

First and foremost, it’s important to acknowledge that there’s definitely some overlap between a will and a trust. Both kinds of document enable you to:

• Name guardians for minors (or pets)
• Name specific beneficiaries for specific assets
• Spell out your final worldly wishes (e.g., how and where you want to be buried, etc.)

But that’s where the similarities end.

A trust will give you much more control—and much more protection—in determining what happens to your assets after you die. With a trust you can avoid probate, put stipulations on named beneficiaries (e.g., participate in annual drug testing), reduce your assets’ cumulative tax burden, and more. 

How do you set up a trust? 

Trusts vary in their complexity depending upon the number of assets you put into the trust, and your wishes for how the trust should be managed. But regardless of the level of complexity, you’ll want to plan your trust out carefully with an attorney who specializes in estate law. 

An estate attorney will help you:

• Determine what type of trust you should create
• Outline who the beneficiaries and trustees will be
• Complete all legal documents detailing the management of the trust
• Ensure the directives in your trust comply with all local, state, and federal laws

Who can help you set up a trust?

As mentioned in the previous section, your best bet is going to involve speaking with an estate attorney. Their knowledge will be second-to-none when it comes to understanding trust-related laws, the different types of trusts, various financial obligations, and more. 

Ideally, you’ll also want to work with a tax accountant (or an estate attorney with an accounting background) as their expertise can help you understand which tax obligations your trust can avoid and which it can’t, thereby maximizing your trust’s financial strength over time. 

How much does setting up a trust cost and is it worth it?

Like so many things in life and in real estate, the answer here isn’t black and white. The cost of setting up your trust will depend on what type of trust (e.g., a living trust versus a testamentary trust) you’re creating and the type of asset (or assets) that are being held inside the trust.

Some of the more common fees include:

• Legal fees
• Origination fees
• Accounting fees
• Trustee maintenance fees

At a minimum, you should expect to shell out a few thousand dollars to create a basic trust, especially if you’re living in a high-income or metropolitan area such as Los Angeles.  

What should you keep in mind when setting up a trust?

There are lots and lots of little things to keep in mind when you’re setting up a trust which is why I reiterate…

YOU NEED TO DO THIS WITH AN ATTORNEY AT MINIMUM…And not just any attorney, you need to work with someone who understands all the intimate little details related to estate law. 

Beyond working with the right professional, you should also keep in mind:

• Who you want to name as your trustee or trustees
• What assets you want to use to “fund” the trust
• How you want said assets to be distributed to beneficiaries—especially if your trust will involve minors
• When the trust will “start” and when the trust will “end” (i.e., duration)
• Any and all provisions you want to include regarding the dissolution of the trust, etc.

When should you set up a trust?

Um…yesterday?

If you haven’t had the time, the money, or even the idea to set up a trust yet, don’t beat yourself up—by simply reading this newsletter, you’re already more informed about trusts than +90% of the U.S.

Having said that, now that you are informed, don’t waste any more time—connect with a reputable estate attorney, accountant, or financial advisor and start the conversation. A trust won’t come to life overnight, so the sooner you start those exploratory conversations, the sooner you can get into the weeds and actually draw up a legally binding document that protects your assets, your wishes, and your beneficiaries. 

What happens if you don’t set up a trust before you die?

I don’t want to be too macabre but…bad things.

Let’s pretend that tomorrow morning you don’t wake up (sad!). And for the sake of simplicity, let’s also pretend you don’t have a will. 

By failing to take the time to create a trust, you will die “intestate” which means your assets will need to go to probate for court-determined distribution in accordance with local laws and guidelines.

Not only does that mean you won’t have any control or direction over “who gets what”, but it also means those who do get your assets will need to spend a sizable percentage of said inheritance on attorney and court fees. Additionally, the absence of a trust will delay transfer of your assets to next of kin.

Need more advice on creating a trust?

Look, I’m not going to sit here and pretend I’m an estate attorney or tax accountant.

But I’m also not going to sit here and pretend that I’ve never talked trusts before.

So, if you’re unsure about what it takes to create a trust—or if you just have general questions—reach out to me. If I can’t get you the answers you’re looking for, I can point you in the direction of reputable estate-planning professionals who can.

Always At Your Service, 

-Shannon