A trust is a legal entity where a person, who is the trustor, gives the right to manage his assets or property to a trustee for the benefit of the trustor's beneficiaries. A living trust is created by the trustor while he's still alive. A living trust can be used for long-term property management to avoid probate, and it can be a means to earn an income.
Starting the Trust
Have the full names, ages and addresses of each of the people involved in the trust. These are the grantor, the beneficiaries of the trust and the trustee, who manages the trust. Ensure that special-needs beneficiaries have an appointed guardian who must be mentioned in the trust documents. You should have at least two names, listed in order of preference, of the guardians.
Fill the pertinent forms, which can be purchased at bookstores or obtained from legal and financial practitioners. Hire an attorney to draft a living trust and examine the documentation provided to ensure it is correct and that all the information is provided. You must provide information on the legal guardians of underage children or special-needs beneficiaries. You also should have a conservator clause to nominate a conservator. Ensure there is a mental capacity and competency clause that states what should be done if the grantor is incapacitated mentally. Include a durable power of attorney for financial and health issues. These give a person the authorization to handle the financial or medical decisions if the grantor is incapacitated.
List all the assets to be included in the living trust. Each asset should have a dollar value. You should first list liquid assets, such as cash, precious metals and bank accounts, followed by stocks, bonds, vehicles, antiques, art and collectibles and jewelry. List deeds, copyrights, business holdings, partnership interests or rights of ownership. Describe fully each item on the list. Calculate the estate taxes and add all the assets. Then add all the trustor's liabilities and subtract them from the assets to get the net worth. Put aside at least 20 percent of the net worth in the trust name so that the beneficiaries do not pay taxes or probate.
Buying the House
Look for houses that are on the market. Use the Internet or newspapers to browse through advertisements. Pick two or three houses that meet your requirements and make arrangements with a Realtor to view them. Once you've found the right one, negotiate the price with the seller.
Contact your bank to discuss mortgage financing if you do not have cash to purchase the house. If the bank establishes that you qualify for funding, make a formal application for the loan. It is often better to get preapproved for a loan before you begin house shopping so you know exactly how much of a home you can afford. It also speeds the process.
Hire a real estate lawyer to draw up the house purchase contract. Ensure that you understand all the clauses that are inserted in the contract as small details can be crucial if a dispute with the seller arises in future.
Deposit money into an escrow account to assure the seller of your seriousness to buy the home. Sign the purchase agreement and have the seller surrender the ownership documents to your lawyer, who will undertake the process of transferring the ownership to the name of the trust.
Release money from the escrow account when the ownership documents are transferred to the name of the trust. Take possession of the house and rent it out or live in it as desired.