What information is needed to set up a Trust?
What is a Personal Representative or Conservator of an Estate?
What is a Trust?
A trust, like a corporation, is a legal entity which usually holds assets, pays taxes and exists for some stated purpose. The donor or whoever creates the trust usually specifies the purpose, such as to hold assets for a child, perhaps until the child reaches age 30. Many other purposes exist. Someone or some company is named as the trustee to manage the trust.
Steve Hample can share practical advice based on twenty years experience in financial planning plus personally serving as trustee on several million dollars of trust assets. Although our officers can provide initial suggestions, trust documents should be written by an attorney who specializes in that topic.
back to top
What information is needed to set up a Trust?
Whom, Who, What, Why, How. Exactly whom do you want to help? Who should manage the trust? What assets will be transferred into the trust? Why should the assets be protected (including tax protection if appropriate)? How should the trust be operated? Answering these five basic questions will give you an outline for a trust document. back to top
Why do people create Trusts?
Perhaps the most common reason is to protect assets from being misspent by a young person. It just might not seem wise to take the chance of a teenager (or a slightly older person still acting like a teenager) inheriting a large sum of money. Perhaps the next most common reason is to provide for the support of an older person, usually a surviving spouse with the goal of having a trust manage the assets and pay out income or pay bills for as long as the second spouse lives and only then distribute assets to others. Another example is in second marriages where children exist from prior marriages; as an alternative to a pre-nuptial agreement, certain assets could be placed in trust before the second marriage and post marriage assets could then be jointly shared. Trusts are often established for mentally handicapped persons. Charitable trusts can be established to reap special tax advantages while supporting worthwhile causes. Trusts are sometimes designed to help protect assets from possible lawsuits. Some trusts (such as wealth preservation irrevocable life insurance trusts) are designed to save taxes.back to top
Do I need an Attorney?
Yes. Paperback books, computer software or living trust seminars are a poor substitute for advice from your own experienced attorney. In theory, these other sources should be fine. In practice, things can really get messed up. What works in Mississippi might not work in Montana. It is fine to read about trusts before meeting with your attorney.
Are Living Trusts good?
Think of it this way: a screwdriver is a tool to use with screws. Also using it as a wood chisel, soldering iron, crowbar, paint stirrer and peanut butter spreader is not advised. Use the right tool for the job. Your attorney will know about a variety of legal tools and can best advise you.
How much does a Trust cost?
That depends on the complexity. For relatively simple cases, you might expect to pay around $1,000 to $2,500. If your last name is Rockefeller or Onassis and you live in New York City, expect to pay more.
Annual administrative costs are usually about 1% to 2% of the value of the trust, for a typical trust holding a few hundred thousand dollars of stocks, bonds and similar investments. Larger trusts typically get quantity discounts. Trusts which hold unusual assets or require extra management typically charge additional fees.Trusts are usually considered impractical if total assets are worth less than $100,000 because the administrative cost might be relatively high. Other financial tools exist for such cases. Conversely, in the case where a teenager or a financially unsophisticated person might inherit $500,000, a trust might be cheap insurance. back to top
Can I change a Trust later?
It depends. Revocable trusts can be changed at any time, but the IRS therefore ignores them for estate tax purposes. Irrevocable trusts are designed to convince the IRS that assets really were transferred and can’t be taken back. With careful wording, donors can still influence an irrevocable trust without changing it. In rare cases, a court might change irrevocable trust. back to top
Who should be Trustee?
This question should be considered carefully. If your brother Fred is willing and able, he may be the cheapest trustee. But if Fred’s health turns worse or if he lacks financial administration experience (trust tax returns can be complicated), or if naming Fred would upset other family members, then another choice might be better. An independent corporate trustee can be impartial, always available, and competent. The trust could always name Fred as an advisor to the trustee. If the trustee is not a corporation, consider successor trustees in case the first person becomes unable or unwilling to take the responsibility of being trustee. Most trusts at least name a corporate trustee, such as our trust company, as the final successor trustee. back to top
What is Bonding?
Many trusts require that the trustee be bonded, i.e., covered by an insurance policy that will reimburse the trust if the trustee takes certain improper actions. Generally, all officers of all banks and trust companies must be bonded. A trust can be written such that a family member or friend serving as trustee need not be bonded. back to top
What is a Personal Representative or Conservator of an Estate?
In Montana, the executor of the estate of a deceased person is usually called the personal representative of the estate. In the case of a living person unable to manage finances, perhaps due to age or health, a person / trust company appointed for that purpose is usually called the conservator of the estate. The word "estate" refers to assets of a person, either living or deceased. back to top