Setting Up Personal Trusts: 10 Tips for Real Estate Investors

A trust is a legal arrangement that someone places property for the benefit of one or more beneficiaries. It is bound by the trust agreement which is drawn up by your attorney. The trust agreement names a trustee to manage assets in a trust.[1] When is it a good idea to set up personal property trust? Now. Especially if you are a real estate investor. Along with incorporating your real estate business, setting up a trust can protect your personal assets. A personal property trust is actually a Revocable Living Trust. If you own property in more than one state, your trust enables your heirs to avoid probate court in multiple states . With a trust, you can keep control of your assets during your life if you become unable to manage them yourself. Additionally, if you split up your revocable living trusts in to sub-trusts, it can be divided easily among your heirs. Trusts are flexible because all sorts of property can be placed in them. This includes stocks, bonds, furniture, life insurance and tangible personal property. Here are 10 tips to help you get started on preparing to set up your trust:

1. Talk to your attorney.

Your attorney will know about drafting trusts in general. He or she should be able to advise you on how it should be outlined to meet your needs. If not, consider selecting another attorney for setting up your trusts. You want someone who has experience in this area and can advise you based on that experience.

2. Talk with your tax professional, your accountant.

You accountant who manages your financial assets will have some advice on the kind of trust that could be beneficial to you the most. Knowing about your finances, particularly your financial assets, your tax professional will also know what properties are likely to receive tax benefits.

3. Select a trustee.

The person you select will be responsible for managing the assets in your trust should you become incapacitated, or upon your death. Accounting is a major part of managing any trust, so make sure the trustee you select is a responsible, trustworthy person. You may want to select a corporate trustee, should you not find or know of a relative who has the inclination to manage your assets in a responsible manner.

4. Select a trustee as a successor to your original designated trustee.

It is always good to have a backup. Furthermore, if your trustee finds managing your accounts difficult, the successor can step in. You may want to consider having more than one successor initially. This is something you will want to discuss with your attorney, including the pros and cons of multiple successors. How this is managed will be explained in the "Statement of Terms" in your trust documents that you set up.

5. Draft instructions for your trustee(s) on how they will pay on income during your lifetime, should you become unable to manage your own assets.

This includes how records should be maintained. Do not assume that they will already know your wishes.

6. Draft instructions for your trustee(s) on how they will pay on income and debts after you are deceased.

This will entail the division of properties you own, payment on tax obligations and other important aspects of all properties.

7. Put in the "Statement of Terms" what would cause the trust to be revoked or amended.

In this section, you could list hypothetical situations that would cause your successor to be replaced by the successor to the trustee. Such as inappropriate management of funds based on your instructions stated in the trustee document.

8. Consider setting up several trusts.

This may be a good idea if you have properties in different states. This may lesson the responsibility on one successor by having several trustees. Your heirs benefit by avoiding probate court in each state.

9. Make sure you separate your assets that are owned jointly from those you own individually.

Property you own outright is easiest to make plans for compared to jointly owned properties. If you do not separate these types of properties, the assets you own could be tied up in distribution because you have them in the same trust as your co-owned properties. This could make it more difficult for your heirs to get what you want them to have.

10. Re-register your assets to the trust and attach a schedule of assets to the trust agreement.

This is what makes a trust different than a "will". Your trust must be funded with your assets. Any item you place in your trust, must list your trust as its beneficiary. Your trustee is the manager of those items in the trust. Your attorney will guide you completing the process. Your assets are now protected.

All real estate investors benefit greatly by setting up personal trusts. Even if it is just to make sure their heirs receive assets willed to them without the hassle of going to probate court in multiple states. The added benefit of a having personal trust is that you can determine how your estate will be administered, should you become unable to manage it during your lifetime.

[1] http://www.alaskausatrust.com/trustee/intro/trustDefinition.asp. Accessed August 15, 2008