How to Set Up a Trust: Costs and Management

Why trusts exist and what they do

Before getting into how to set up a trust, it’s worth noting what a trust actually does. At its core, a trust is a legal arrangement that holds assets on behalf of one or more beneficiaries. These beneficiaries could be a person, an organization, or a legal entity. 

A trust also includes instructions for how you want the assets inside of it to be managed and distributed upon your death.

Depending on the type of trust, it may help you:

• Avoid probate court
• Keep your affairs more private (probate court is usually public record)
• Control when and how your assets are distributed
• Plan for incapacity if you can’t manage your affairs on your own
• Reduce estate taxes if your assets exceed the tax exemption threshold

For example, a trust can allow certain assets to pass directly to your beneficiaries without going through the probate process. It can also let you decide whether someone receives their inheritance all at once or over time.

There’s no minimum net worth required for a trust. Still, not every estate plan will need one. They’re usually best for people who want more control over what happens to their assets, want to make things easier on their loved ones, or have more complex estate planning goals than a will alone can address.

The trust setup process

Setting up a trust usually comes down to four main steps. While every situation is different, here’s what you can generally expect.

Step 1: Choose the right trust for your goals

Before anyone drafts legal documents, you’ll first decide what you want the trust to do.

For example, you might want to set up a trust to avoid probate, to financially provide for a loved one with a disability, or to reduce potential estate taxes. Your goals help determine which types of trusts make the most sense.

The person who sets up the trust is called the grantor or settlor.

Step 2: Create a trust agreement with an estate planning attorney

Once you’ve decided on the right strategy, an estate planning attorney can prepare the legal documents.

Your trust agreement will outline:

• How the trust works
• Who the beneficiaries are
• Who will manage the trust
• How assets should be distributed

Because trust laws vary by state, it’s generally best to work with an attorney familiar with your state’s requirements.

Step 3: Sign and execute the trust

Once you finalize the trust agreement, you (or whoever the grantor is) will need to sign it according to your state’s requirements. Depending on where you live, that may include notarization or witnesses.

Step 4: Fund the trust

Funding a trust simply means transferring assets into it. You can typically fund a trust with almost any asset, including:

• Financial accounts (checking, savings, certificates of deposit, money market accounts, brokerage accounts, retirement accounts)
• Property (primary homes, vacation homes, commercial properties)
• Businesses (family businesses, partnerships, ownership stakes in privately held companies)
• Collectibles (valuable artwork, vehicles, antiques, jewelry)
• Life insurance policies (whole life, universal life, variable universal life, survivorship policies)

Each type of asset is handled differently, so working with a financial professional can be especially helpful for this step. If you do something wrong, you could risk an asset not making it into the trust.

Choosing a trustee

Choosing a trustee is one of the biggest decisions you’ll make when setting up a trust. This person (or institution) is responsible for managing trust assets and carrying out the instructions you’ve put in place.

If you create a revocable living trust, you’ll usually serve as your own trustee while you’re alive. You’ll also name a successor trustee who can step in if you become incapacitated or after your death. Some irrevocable trusts, on the other hand, require an independent trustee.

When deciding who should serve in this role, look for someone who is:

• Trustworthy and able to act in your beneficiaries’ best interests
• Organized and comfortable managing financial responsibilities
• Willing to serve for what could be many years
• Able to communicate clearly with beneficiaries and other professionals

Many people choose a spouse, adult child, sibling, or close friend. But you may prefer a corporate trustee, such as a bank or trust company, if the trust could last many years or you prefer a neutral third party to manage distributions.

What trust administration involves

Once you set up and fund your trust, a trust administrator will manage the paperwork and administrative tasks required to keep it active.

If you have a simple revocable living trust and you’re serving as your own trustee, there usually isn’t much extra work. You’ll continue managing your assets much as you do today while keeping trust-owned property and records up to date.

Administration typically becomes more involved when a successor trustee takes over because of incapacity or death. At that point, they may need to:

• Keep financial records
• Communicate with beneficiaries
• Manage trust assets
• Make distributions according to the trust’s instructions
• File tax returns, if required

The amount of work depends on what’s inside the trust. A trust holding a home and a few investment accounts is often much easier to manage than one that owns a business, multiple properties, or other complex assets.

If no family member wants to take on those responsibilities, a corporate trustee or trust company can manage the trust for a fee.

How much does it cost to set up a trust?

What you’ll pay to set up a trust depends on many factors, including the type of trust you’re setting up, where you live, how much the attorney charges, and more.

That said, the National Council on Aging (NCOA) estimates it can cost between $1,000 and $4,000 to set up a living trust.² LegalShield estimates it can cost anywhere from $400 to $5,000 or more.³

More complex trusts (such as special needs trusts, dynasty trusts, or irrevocable trusts used for tax planning) could cost more because they require additional legal work.

There may also be ongoing costs if you choose a corporate trustee, for example, and need to pay administration fees. Some trusts may also require tax preparation or periodic legal reviews.

The best way to understand what a trust might cost is to discuss your situation with an estate planning attorney and financial professional.

Funding the trust: the step that matters most

Remember: A trust can only control assets that have been transferred into it. If those assets never make it into the trust, the trust can’t accomplish what it was created to do.

Failing to fund a trust is one of the most common mistakes people make when setting up a trust. If an asset isn’t transferred into the trust, it may still have to go through probate or be distributed outside the terms of the trust.

Funding a trust simply means changing ownership or updating certain assets so they’re connected to the trust.

How a financial professional can help you set up a trust

Creating a trust is a legal process, so an estate planning attorney drafts the trust documents. A financial professional helps make sure the rest of your financial life supports that plan.

For example, they can help:

• Identify which assets may belong in the trust
• Coordinate beneficiary designations
• Align insurance policies and investment accounts with the trust
• Help ensure the trust is properly funded

Frequently asked questions