If you are in the process of planning your estate, you may have heard of terms such as wills and trusts. One of the reasons why trusts are increasingly popular instruments is that they allow you to manage your assets while you are still alive and offer an efficient way to distribute these assets once you are gone. Trusts can offer protection for your assets from creditors and lawsuits, ensuring that your estate remains as intact as possible. However, given the cost of setting up a trust, you may be wondering: Can you set up a trust without an attorney? While the answer is technically yes, there are many nuances involved. Here is what you need to know about this topic.
What Are Trusts?
We have already defined trusts as legal instruments that make it possible for you to manage your assets and distribute them efficiently when you pass on. Trusts come in many types, and the choice of which to go for depends entirely on your needs. Principally, trusts can be grouped into three, namely:
- Revocable Living Trusts: For people looking to retain complete control over their assets while at the same time working to avoid the long probable process of their demise, this type of trust is perfect for their needs. A revocable living trust gives you complete control of your assets, allowing you to sell or exchange the assets to take advantage of market conditions. You can even revoke the entire trust, thus transferring ownership of all the assets back to yourself. The downside to this type of trust is that all income and interest on the assets is taxable, which goes to reducing the total income available to you and your beneficiaries.
- Irrevocable Trust: This is the complete opposite of the revocable living trust. Here, once the trust comes into existence, you lose complete control over the assets. The upside to this kind of trust is that you shield the assets from tax liabilities, ensuring that the trust can grow a lot faster without the tax burden than would otherwise be possible. For people happy to relinquish control over their assets, this is an ideal setup and can lead to significant gains.
- Charitable Trust: This kind of trust distributes assets to a qualified charity that offers altruistic benefits. There are subdivisions of these trust types such as the grantor trusts, which walk the path between revocable living trusts and irrevocable trusts. Grantor trusts enable the trustor to have some degree of control over their assets in exchange for some tax liability. The exact extent of this control and tax liability depends on what is allowed by the respective state laws, as well as the wishes of the trustor.
Who Are The Main Parties In A Trust?
There are three main parties involved in any trustee. The first is the trustor or grantor. This is the person who owns the estate and who wishes to pass it on to a trust. The second key party of any trust is the trustee. This is an individual or organization that manages the trust assets based on the agreement that is reached with the grantor. Finally, there are the beneficiaries, who are the organizations or individuals who will receive an income from the assets or may end up with the assets themselves if the trust is to be liquidated. Apart from individuals, there are also trust assets, which refer to the estate that is being managed. This could include stocks, real estate property, art, and anything of value.
Can You Set Up A Trust Without An Attorney?
As indicated earlier, the answer to this is technically yes. There are numerous resources online that one could use to set up a trust. The only benefit to setting up a trust on your own is saving on t eh legal fees. However, it is critical to remember that trusts are legal instruments and therefore, they are subject to ever-changing laws and regulations by state and federal authorities.
There are many reasons why it is wise to involve an attorney when you are setting up a trust and one of these is the fact that to create a sound trust, to need to have a clear understanding of the laws around trusts. This is made more complex by the fact that states have different laws around trusts, which means you have to understand not just the general principles around trusts but also the local laws that govern what you can and can’t do
Drawbacks To Setting Up Your Own Trust
- Legal and Technical Errors: Without experts to help you navigate the complex process of setting up a trust, there are some potential problems that you could encounter. The first of these is that you may make errors not just in the technical aspects of the trust but even in the legal language. These errors can have far-reaching consequences on the validity of your trust. For example, mistakes could lead to the invalidation of the trust, leading to scenarios where your intended beneficiaries get nothing while people who didn’t intend to distribute assets become the beneficiaries.
- Invalid Trust Declaration: Mistakes in setting up your trust can lead to your trust being declared invalid. If this happens, then you get no benefits from the trust in terms of tax protections. Even worse, it means that your estate could have to go through a probate process, which might see your assets end up with people you did not intend to be your beneficiaries. Your assets could also end up attracting higher tax liabilities, leading to a general reduction of what your beneficiaries will get.
- Trust Funding Oversight: Another potential pitfall to setting up your trust without expert guidance is the danger of some assets being left out of the trust. This is because the process of setting up a trust involves the transfer of assets to the trust, which in turn means complex legal work. If a mistake is made during this process, you are likely to end up with some assets outside the protection of the trust. This in turn could potentially lead to higher tax liabilities.
As you can see, the pitfalls of trying to set up your trust can have serious ramifications for your entire estate planning process. Whatever money you will save by not involving estate planning experts could be insignificant compared with the price you might have to pay. For this reason, working with experts such as Nevada Trust Company can make your estate planning process a lot easier and accurate. Our focus lies in delivering trustee and custody solutions, with expertise in asset protection trusts, self-directed retirement services, and holistic wealth management strategies customized to clients globally and domestically alike. You can have complete peace of mind that these experts will ensure that the trust you create meets all your needs and leaves a lasting legacy.
