Why Do You Need a Lawyer to Set Up a Trust?
by Philip Ahn, Attorney
Instead of handing cash to your beneficiaries, a trust can protect them from legal issues and taxation. It’s reasonable to ask why you’d need a lawyer’s help to ensure that you and your family are well-provided for. However, you don’t want to risk losing a trust’s considerable benefits by putting it together incorrectly.
If you have few assets with only a handful of instructions for disbursement, then hiring an estate planning lawyer to set up a trust for you may not be necessary. On the other hand, if you intend on setting up a trust that involves large assets, detailed instructions, or multiple people, it is very likely in your best interest to hire an estate planning attorney.
Do I Need an Attorney To Set Up a Trust?
Technically, you are not required to hire an estate planning lawyer to set up your trust. When setting up a trust on your own, you should be sure to include the following information:
- The name of the trustor
- Name of the trustee (typically yourself)
- The name of the successor trustee
- The beneficiaries that you intend to leave your property to
- Instructions for disbursement
In addition, be sure to check your state’s laws. Many require the grantor’s signature to be notarized and include witnesses.
It will be especially beneficial to hire an estate planning lawyer if your estate plan includes any of the following provisions:
- High-value life insurance policies
- Set conditions for beneficiaries, such as gifts conditioned on attending college or surviving one night in a haunted house
- Generation-skipping (i.e. leaving money to your grandchildren)
- Requirements to maintain funding of the trust
The more complicated your estate planning needs are, the more likely you are to need an attorney to create an effective trust agreement.
Pros of Hiring an Estate Planning Lawyer
It’s a significant possibility that a emotional fight, or even a legal one, will break out over your trust and estate. Creditors, people who are left out, and even beneficiaries will spar over the interpretation of your wishes.
An experienced estate planning attorney will prevent these situations from impacting the trust. They’ll know how to ensure your trust survives long into the future, by drafting the trust to minimize and deter possible negative outcomes.
Cons of Hiring an Estate Planning Lawyer
The only real negative of hiring an estate planning lawyer is the cost. In fact, estate planning lawyers tend to charge between $2,000 and $7,000 upfront. Unfortunately, many are turned off by the thought of hiring an estate planning lawyer unless they can find a more affordable one.
Benefits of a Trust
Trusts can be complex, varied, and adaptable. Though once considered financial tools meant exclusively for the rich and super-wealthy, they can be beneficial for many across the economic spectrum. Among the chief benefits of trusts, they allow you to:
- Create instructions and conditions for asset distribution upon death
- Reduce overall estate taxes and/or gift taxes
- Distribute your assets among your beneficiaries without probate costs and publicity
- Add a layer of protection for your assets against certain creditors and lawsuits
- Identify a successor trustee
It is important to note that the probate process, in which assets without instructions are distributed after death, can cost your estate upwards of 10 percent of its value. Trusts can help you to avoid probate fees, legal fees, executor fees, and other court costs. Regardless of the size of your estate, a trust can help you and your beneficiaries to save a significant amount of money.
Since your reasons for setting up a trust, the amount of assets you wish to fund the trust with, and the disbursement instructions will vary, an estate planning attorney can provide guidance on the best type of trust to choose.
Tips To Reduce The Costs of Setting Up a Trust
The high cost associated with hiring a trust lawyer dissuades many from doing so. While the benefits of working with an estate planning lawyer are clear, it is not always possible to pay thousands of dollars upfront. If you would like to save money on setting up a trust while still retaining the help of an attorney, check out a few cost-saving tips below.
- Conduct Your Own Research: You are not expected to become a trust fund expert overnight. However, having a basic understanding of your state’s laws and what is required of you before starting a trust fund can save you a lot of time and money.
- Know What You Want: Knowing the laws are not enough, before meeting with your trust lawyer, it is best if you at least have an idea of what you would like to do with your assets, your reasons for setting up a trust, and who you want your assets distributed to.
- Take Care of a Few Things on Your Own: You can save money on legal fees by taking care of a few things on your own, and hiring a attorney to handle the rest.
What is a Trust?
A living trust is essentially a document created by the grantor (also called trustor, settlor, or trust maker) that gives a way to manage as well as disperse assets to specified beneficiaries upon their death.
A trust is typically one piece of a comprehensive estate plan. Once the grantor transfers their assets to the trust, the assets no longer belong to them. They will be owned by the trust and under the control of the named trustee.
It is important to note that the trustor may also be the trustee (depending on the type of trust) until they are incapacitated or pass away. Trusts can be used as financial tools as well as vehicles to pass money, assets, or property to another person or organization. The most common types of trust funds include revocable, irrevocable, and testamentary trusts.
Revocable Living Trust
A revocable living trust is set up while the grantor is alive. This represents the vast majority of trusts. Most living trusts are made revocable until the passing or incapacitation of the grantor. Once this occurs, the trust will become irrevocable. Living trusts can offer many benefits to include:
- End-of-life/healthcare instructions desired by the trustor
- Reduced or eliminated probate fees (in many cases)
- Easy access to assets for beneficiaries
- Privacy (unlike wills)
Since most living trusts are revocable, the assets therein are still considered the property of the grantor. This means that creditors can still potentially lay claim to the assets held in a trust and the grantor will still have to pay taxes on the assets in the trust.
These types of trusts are also called “trusts under will.” Unlike a living trust, these are created by a will after the grantor’s death. A testamentary trust can help to:
- Preserve assets for children from past marriages
- Financially provide for your spouse after your death
- Leaving money behind for beneficiaries with special needs
- Gifting money to charitable organizations
An irrevocable trust is a type of trust that cannot be changed or revoked without the explicit permission of the beneficiaries of the trust. Unlike revocable trusts, once the grantor funds an irrevocable trust, they absolve themself of all ownership rights to the assets. People create revocable trusts for many reasons such as:
- Tax advantages and benefits
- Preventing beneficiaries from misusing the assets by setting distribution rules
- Gifting a principal residence with more lenient tax rules
- Deplete property to remain eligible for government benefits (i.e. social security, medicare, etc.)
You can save thousands of dollars in upfront fees by hiring a trust lawyer to handle the more complex parts of filing a trust, while you take care of the rest (conducting research, drafting a trust agreement, and creating distribution rules). Fees for an unbundled estate planning attorney start as low as $500-$1500 upfront. If your estate planning needs are more complex our network of unbundled attorneys also offers full representation at affordable rates.
Regardless if you ultimately choose to hire an estate planning lawyer in your area or not, it can be helpful to at least schedule a free consultation with an unbundled trust attorney in your area.