Setting Up a Trust 

Setting up a trust might seem complicated, but it is one of the best ways to protect your assets and take care of your loved ones. If you’re curious about the benefits and want to know how to set one up, you've come to the right place. I'll walk you through everything you need to know about setting up a trust with practical tips and step-by-step guidance. 

Understanding Trusts 

A trust is a legal arrangement in which one party, the trustee, holds and manages assets for the benefit of another party, the beneficiary. Think of it as a secure vault where you can place your valuables so they’re handled according to your wishes.  

The trustee is responsible for managing these assets and distributing them to the beneficiary in a manner specified by the trust agreement. This can include managing investments, paying bills and expenses, and distributing funds to the beneficiaries for their needs. 

Types of Trusts

There are several types of trusts, each serving different purposes. 

Revocable Trusts   

A revocable trust, also known as a living trust, allows you to maintain control over your assets. You can alter or revoke it at any time. This flexibility makes it an excellent choice for those who want to manage their estate actively. 

Irrevocable Trusts   

Unlike revocable trusts, irrevocable trusts cannot be changed once established. They are often used for tax benefits and asset protection, as the assets are no longer considered part of your estate. 

Testamentary Trusts   

This kind of trust is created through a will and only goes into effect after your passing. It is used to manage asset distribution and ensure that assets are used according to your wishes. 

Charitable Trusts   

Charitable trusts are irrevocable in nature. They are designed to benefit a particular charity or the public in general. They can provide significant tax benefits to the donor while supporting causes that are important to them.  

Special Needs Trusts   

Special needs trusts provide for individuals with disabilities without affecting their eligibility for government assistance programs. These trusts ensure the beneficiary can receive financial support while still qualifying for essential benefits like Medicaid and Supplemental Security Income (SSI). 

Spendthrift Trusts   

Spendthrift trusts are created to protect beneficiaries from their creditors and from squandering their inheritance. The trustee controls the distribution of the trust funds, providing financial management and protection for beneficiaries who may not be able to manage their own finances responsibly. 

Why Set Up a Trust? 

Trusts offer numerous benefits that go beyond just asset protection. 

• Probate avoidance: Probate can be a lengthy and costly process. Assets placed in a trust can be transferred to your beneficiaries without going through probate, saving time and money. 

• Privacy protection: Unlike wills, trusts are not public records. This means your estate plan remains private, shielding your financial affairs from public scrutiny. 

• Control over asset distribution: With a trust, you can dictate precisely how and when your assets are distributed. This is useful if you have minor children or beneficiaries who might not be ready to handle large sums of money. 

• Asset protection: A trust protects your assets from creditors, lawsuits, and other financial threats. It can safeguard your wealth and keep it intact for your beneficiaries. 

• Tax benefits: Certain types of trusts, particularly irrevocable ones, can help reduce estate taxes and other associated costs, allowing you to pass on more of your wealth to your beneficiaries without being diminished by taxes. 

• Care for dependents: A trust can provide financial resources to dependents, such as minor children, elderly parents, or individuals with special needs. By specifying how and when these funds should be used, you can provide ongoing support even if you cannot oversee their care directly. 

How to Set Up a Trust

Here's a straightforward guide to help you through the process. 

1. Identify Your Goals 

First, determine what you hope to achieve with your trust. Are you looking to protect assets, avoid probate, or provide for a loved one? Knowing your goals will help you choose the right type of trust. 

2. Choose a Trustee 

The trustee is responsible for managing the trust's assets. This can be a trusted family member, friend, attorney, or financial advisor. 

3. Draft the Trust Document 

The trust document specifies the terms and conditions of the trust. You should work with an experienced attorney to make sure it meets legal requirements and clearly states your intentions. 

4. Fund the Trust 

After drafting the trust document, you need to transfer your assets into the trust. This process, known as funding the trust, involves formally re-titling assets such as real estate, bank accounts, and investments in the name of the trust. Without this, the trust cannot effectively manage or distribute these assets according to your wishes. 

5. Inform Your Beneficiaries 

You should communicate with your beneficiaries about the trust and its purpose. While you do not need to disclose all the details, keeping them informed can prevent confusion and disputes in the future. Clear communication ensures everyone understands their roles and expectations. 

6. Regularly Review and Update the Trust 

A trust should not be a set-it-and-forget-it arrangement. Events like births, deaths, marriages, and significant financial shifts may necessitate updates to your trust. Regularly reviewing and updating your trust keeps it aligned with your current circumstances and goals. Consult with your attorney periodically to keep everything in order. 

Trust Laws in Missouri

If you’re thinking of setting up a trust in Missouri, there are laws and regulations you should be aware of. 

Community Property Considerations 

Missouri is not a community property state. The state follows an equitable distribution model, which means that marital property is divided in a fair and just manner, rather than being split 50/50 as in community property states. This could affect how assets in your trust are distributed upon divorce or the death of one spouse.

Trust assets are generally not considered marital property, but any income earned from the trust during the marriage may be subject to division. To see that your trust is protected in these situations, it's important to work closely with your attorney and clearly outline any restrictions or guidelines for how trust assets are distributed.

Spendthrift Trusts

Missouri recognizes spendthrift trusts, which provide protection for beneficiaries who may be unable to manage their inheritance responsibly. These trusts limit the beneficiary's access to funds and protect them from creditors attempting to collect on debts. However, there are certain limitations on these types of trusts, such as not being able to completely shield assets from child support obligations.

No-Contest Clauses 

Missouri law permits the use of no-contest clauses in trust documents. These clauses discourage beneficiaries from challenging the trust by threatening them with disinheritance if they file a lawsuit against the trust. While no-contest clauses can prevent disputes, they must be carefully drafted to comply with state legal standards and should be enforceable. 

Enlist Experienced Legal Guidance 

Growing up in a family that greatly valued education, I, Attorney David W. Walker, understand how important it is for clients to understand estate planning. With over thirty years of legal practice, I have honed my skills in creating comprehensive estate plans. My goal is to help people safeguard their assets and protect loved ones. If you’re in Columbia, Jefferson City, Fulton, or Boonville, contact David W. Walker, Attorney at Law, located in Columbia, Missouri, for guidance on setting up your trust.