Putting your faith in trusts, trustees

I recently discussed the use of trusts as a financial planning tool. This column describes how to establish a trust.

Paperwork and money matters

Establishing a trust requires you to draft a document that specifies your wishes, lists beneficiaries, names a trustee or trustees to manage the assets, and describes what the trustee or trustees may do. For a living trust, you can name yourself as trustee, but if you do, you should also name a successor trustee to take over if you should become disabled or die.

Once the document is completed, you must transfer the assets to the trust. Keep in mind that, in the case of certain assets, such as real estate, you may incur fees and transfer taxes. Some states require you to file a trust document with the state. To find out about your state's laws regarding trusts, you should talk with an attorney who specializes in estate planning.

The role of the trustee

The person who manages a trust, the trustee, has a legal obligation to manage the trust's assets in the best interests of the beneficiary or beneficiaries. This might include managing rental properties, investing funds or paying income to the beneficiary.

How much a trustee is required to do and how much access he or she has to the funds should be specified in the trust document. A simple or mandatory trust requires the trustee to distribute income to the beneficiary. A complex or discretionary trust may grant the trustee discretion over the principal and income to be distributed.

Generally, trustees are paid for their services based on the amount of work involved in managing a trust and the threat of potential liability if assets are mismanaged. How much a trustee is to be paid should be agreed upon in advance.

If you want to name someone as a trustee, talk with that individual or entity about the trust. Be sure they agree to serve as trustee and can comply with the terms of the trust. Because there is generally such a high standard of responsibility and liability imposed on trustees, an individual or entity cannot be forced into becoming a trustee just because he or she is named in a trust document or will. If your designated trustee is unable or unwilling to perform, the court will appoint a trustee for you, unless a successor trustee, such as a corporate trustee, is designated.

Peace of mind

It's possible that establishing a trust may be the answer to your estate planning needs. Take the time to evaluate carefully what you are trying to accomplish, then consult an attorney experienced in estate planning. A well-written trust document can help to provide peace of mind for you and your beneficiaries.

Here are some useful references regarding estate planning:

    * "Plan Your Estate," by Denis Clifford and Cora Jordan (Nolo Press).

    * "Winning the Wealth Game: How to Keep Your Money in Your Family," by Andrew D. Westhem and Donald Jay Korn (Dearborn Financial Publishing).

    * "The American Bar Association Guide to Wills and Estates," (Times Books).

    * "The American Bar Association Family Legal Guide," (Times Books).

    * "Baby Boomer Retirement: 65 Simple Ways to Protect Your Future," by Don Silver (Adams-Hall Publishing).

—Zall, Bureaucratus columnist and a retired federal employee, is a freelance writer based in Silver Spring, Md. He specializes in taxes, investing, business and government workplace issues. He is a certified internal auditor and a registered investment adviser. He can be reached at miltzall@starpower.net.

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