As explained by the Oregon State Bar, in simple terms a trust is a relationship in which a person, called a trustor, transfers something of value, called an asset, to another person, called a trustee. The trustee then manages and controls this asset for the benefit of a third person, called a beneficiary. An asset is any kind of property.

Because a trust can be set up before your death, there is no need for court approval of the trust or the trustee, thus saving the time and expense of court proceedings. One of the uses of a trust is to provide flexible control of assets for the benefit of minor children.

Children cannot legally handle their own financial affairs before they reach the age of 18 or 21 depending on which state they live in. One purpose of creating a trust for a child is to assure the trustor that the child will be benefited but will not have control of the trust assets until the child is older. In establishing a trust, the trustor selects a trustee and specifically instructs the trustee how the assets will be used for the beneficiary. A trust for the benefit of minors often takes effect when both parents have died. It is usually set up to provide for the support, care, and education of the children until they have reached the age set by their parents to actually receive the assets being held by the trustee. Another use of a trust, known as a “revocable living trust”, is as an alternative to a will. This type of trust is revocable and amendable meaning it can be terminated or changed by the trustor anytime during the trustor’s life. However, it may not be changed after the trustor’s death. Like a will, a revocable living trust gives instructions as to how the trustor’s assets are to be distributed at the trustor’s death.

Your tax advisor, attorney, or estate planning professional can guide you through the various tasks associated with each step in creating a trust. Suggested steps for creating a trust include:

• Identifying Assets—Decide which assets you wish to place in trust and how you wish the assets to be managed during your lifetime.
• Specifying Beneficiaries and Distribution—Identify the individuals and charities the trust is to make distributions to after your death.
• Selecting a Trustee—Your trustee will be responsible for administering your assets during and beyond your lifetime. If you decide to name an individual, you should also name a successor trustee in the event of the original trustee’s resignation, unsuitability, incapacity, or death.
• Drafting Your Trust Agreement—Work with your attorney to draft a document that achieves your estate-planning objectives and reflects your personal intentions. File a copy with your trustee and successor trustee. A typical revocable trust agreement would cover, among others, the following points.
• Designation of the trustee
• A statement of the investment powers granted to the trustee
• Instructions for payment of income and principal during the grantor’s lifetime and for distribution of assets thereafter
• Instructions for the trustee to maintain records of the trust’s income, disbursements, and principal transactions
• Specification of any additional responsibilities assigned to the trustee
• A statement of the terms under which the trust agreement may be amended or revoked
• Designation of a successor trustee
• Funding Your Trust—Change the legal title of your specified assets from your name to that of your trust. Your attorney will help ensure that all assets are properly re-registered. If applicable, remember to:
• List all unregistered (bearer) securities on a separate schedule, and assign them to the trust.
• Change the beneficiary of life insurance policies to the name of the trust.
• Convey real estate to be held in trust.
• Deliver all certificatesand evidences of ownership to the trustee.
• Attach a schedule of assets to the trust agreement.

What Is Estate Planning?

This issue of Dollars & Sense tackles several key elements of estate planning, including writing a will, deciding who gets what, and creating a trust.

First off, what is estate planning? In a nutshell it’s the process by which an individual or family arranges the transfer of assets in anticipation of death. An estate is the total property, real and personal, owned by an individual prior to distribution through a trust or will. Real property is real estate and personal property includes everything else, for example, cars, household items, and bank accounts. Estate planning enables you to distribute the real and personal property to your heirs according to your wishes and desires. An estate plan aims to preserve the maximum amount of wealth possible for your intended beneficiaries and flexibility for you prior to your death.

Deciding Who Gets What

they believe in, after they die. In effect, a will becomes the essential document governing how the courts understand your intent and ensures that your wishes are followed. In general, you can pick the people you want your property to go to and leave it to them in whatever proportions you want, but there are some exceptions. For example, a surviving husband or wife may have the right to a fixed share of the estate regardless of the will. Some states limit how much you can leave to a charity if you have a surviving spouse or children, or if you die soon after making the provision.

The first step in deciding how you want your property distributed is gathering information. You’ll need the following:

• Names, addresses, and birth dates for you, your spouse, your children, proposed guardians, and executor of your estate.
• Amounts of all debts, including mortgages, car loans, student loans, business loans, and credit card accounts.
• Copies of existing wills, trusts, divorce decrees, prenuptial agreements and any other legal documents that might affect a will.
• A list of assets, including detailed information about the following: real estate, savings (bank accounts, CDs, money markets), investments (stocks, bonds, mutual funds, CDs), life insurance policies, 401(k), IRA, pension/retirement accounts, life insurance policies and annuities, ownership interest in a business, cars, boats, planes, and other vehicles, jewelry, collectibles, artwork, antiques, furniture, and other personal property.

If you decide to write your will yourself using a software program such as Quicken Willmaker®, sit down in front of your computer with all of the above information and in a few hours you can produce a will that is legal in your state. Be sure to follow the software’s instructions on having your will signed and witnessed. If you feel more comfortable having a lawyer do it, you’ll need to take the above information with you to your appointment.

You may also want to take a look at LegalZoom (www.legalzoom.com) which is a low-cost alternative to pricey attorney services for some of the simpler legal tasks such as wills, living wills and living trusts.

Finally, remember that the best of wills won’t be any good if nobody knows how to find it. Make sure your family members and your executor know where your will is kept.