Questions to Ask Yourself When Setting Up a Trust

Setting up a trust goes better when you walk into the attorney’s office with the right questions already in hand. The questions to ask when setting up a trust are less about legal mechanics and more about what you want to happen with your money and property, both during your life and after your death. A trust is a legal arrangement in which a trustee holds and manages assets for a beneficiary, and the structure that actually works for you depends on answers only you can give. Miss a key question and you can end up with a trust that doesn’t do what you think it does, or one that sits empty because no one explained the funding step.

What Do You Want the Trust to Accomplish?

Start here. Every later decision flows from your goal. People usually create trusts to do one or more of the following:

Avoid probate, so assets pass directly to beneficiaries privately and more quickly than through court.
Provide for minor children or a family member with a disability, with conditions on how and when money is distributed.
Protect assets from creditors or divorce claims against beneficiaries, using certain irrevocable structures.
Plan for your own incapacity, so a successor trustee can step in without a court proceeding.
Reduce estate taxes for larger estates, by removing assets from your taxable estate through an irrevocable trust.

Be specific. “I want to protect my kids” isn’t enough for an attorney to design around. “I want my daughter to receive income from the trust in her twenties but no access to principal until she turns 35” is something a drafter can actually work with.

Which Type of Trust Fits Your Situation?

The type follows from the goal. Ask your attorney to explain why they’re recommending a particular structure and what you give up by choosing it.

Revocable Living Trust

A revocable living trust is the usual choice when the main goal is avoiding probate. You create it during your lifetime, transfer assets into it, and keep full control. You can change the terms, swap assets in and out, or dissolve it entirely. The grantor typically serves as the initial trustee and as a beneficiary, so day-to-day life doesn’t change much.¹

Here’s where people get tripped up. A revocable trust does not reduce your estate taxes and does not protect assets from creditors during your lifetime. Because you keep control, the IRS and creditors still treat those assets as yours.² For the same reason, assets in a revocable trust count as available resources for Medicaid eligibility. If Medicaid planning is on your list, a revocable trust won’t get you there.

Irrevocable Trust

An irrevocable trust generally can’t be changed or dissolved once established. You give up control of the assets, which is the point: because you no longer own them, they’re typically excluded from your taxable estate. The federal estate tax exemption for 2026 is $15 million per individual, so using an irrevocable trust specifically for estate tax reduction is mainly relevant above that threshold.³ Irrevocable trusts also serve asset protection and Medicaid planning purposes for estates well below that number.

Ask what you’re giving up. The loss of control is real. You generally can’t pull assets back, change beneficiaries on a whim, or direct how the trustee invests. Some irrevocable trusts build in limited flexibility through trust protector provisions, but the baseline is that once assets go in, they’re no longer yours.

Testamentary Trust

A testamentary trust is created through your will and doesn’t exist until after your death. Because it’s part of the will, it has to go through probate before it takes effect.⁴ These are often used to manage an inheritance for minor children or to put conditions on distributions. They’re simpler to create than a living trust, but they don’t avoid probate and don’t help with incapacity planning, since they only activate at death.

Special Needs Trust

If a beneficiary has a disability and receives government benefits like Medicaid or Supplemental Security Income, a special needs trust is designed to provide extra support without disqualifying them. The trust pays for things benefits don’t cover, like personal care items or recreation, while keeping the assets out of the beneficiary’s name so eligibility isn’t affected.⁵ Wrong language here can cost the beneficiary their benefits, so specialist experience matters more than general estate planning knowledge.

Which Assets Should Go Into the Trust, and How?

Ask your attorney to walk through every significant asset you own and say whether it belongs in the trust, should stay outside it, or should name the trust as a beneficiary. The distinction matters.

Assets commonly transferred directly into a trust include real estate (your home, rental, vacation property), bank and investment accounts, business interests, and valuable personal property like art or collectibles. For each, you retitle the asset from your name to the trust’s name.

Retirement accounts are the big exception. Transferring an IRA or 401(k) directly into a trust triggers a taxable distribution, effectively cashing out the account. Instead, you can name the trust as a beneficiary on the account, which preserves the tax-deferred status while letting the trust control how distributions reach your beneficiaries after your death.⁶ Life insurance works the same way: name the trust as beneficiary rather than transferring the policy itself.

Ask about every asset individually. The right answer for a rental property can differ from the right answer for a closely held business, and one missed account can create a probate problem later.

Who Handles the Funding?

This is the question most people don’t ask, and it’s where the most expensive mistakes happen. A trust document is just instructions on paper. Until you actually transfer assets into it, the trust controls nothing. An unfunded trust provides zero probate avoidance, because assets still titled in your personal name pass through your estate as if the trust didn’t exist.

Funding means retitling each asset so the trust, rather than you personally, is the legal owner. Real estate requires a new deed, prepared by your attorney and recorded with the county. Bank and brokerage accounts are retitled through the institution, usually on its own forms. Business ownership documents, like operating agreements or stock certificates, are updated to show the trust as owner.

Ask whether your attorney handles the funding or expects you to do it yourself. Some prepare the deeds and walk you through each transfer. Others hand you the signed trust and send you on your way. If your attorney falls into the second group, leave with a written funding checklist and clear instructions for each asset type. Every year, families discover that a parent paid thousands for a trust and never moved a single asset into it.

Who Should Fill the Key Roles?

A trust has several defined roles, and the wrong choice in any one of them creates problems that can last decades.

The grantor creates the trust and transfers assets into it. In a revocable living trust, the grantor typically also serves as initial trustee and primary beneficiary during their lifetime.¹
The trustee manages the assets and carries out the trust’s terms, with a legal duty to act in the beneficiaries’ best interest. Mismanagement can create personal liability.
The successor trustee takes over if the original trustee dies, becomes incapacitated, or resigns. This is often the single most consequential choice in the document, because the successor is managing your assets when you’re no longer there to supervise.
Beneficiaries receive what the trust provides. Current beneficiaries receive distributions while the trust operates; remainder beneficiaries receive what’s left when it terminates.

Ask about the practical side of being a trustee: what records they’ll have to keep, what happens if your chosen person moves out of state, whether co-trustees make sense, and when a corporate trustee is worth the fee. A family member serving for free is cheaper, but also more likely to make mistakes or face conflicts with other beneficiaries.

What Are the Tax Consequences?

Tax questions trip up more trust creators than almost anything else, partly because the rules differ sharply between revocable and irrevocable trusts.

Income Taxes During Your Lifetime

A revocable trust is what the IRS calls a grantor trust. Trust income is reported on your personal return under your Social Security number. The trust doesn’t need its own tax ID and doesn’t file its own return.⁷

An irrevocable trust is a separate tax entity. It needs its own Employer Identification Number and generally must file IRS Form 1041 each year if it has gross income of $600 or more or any taxable income.⁸ Trust tax brackets are dramatically compressed compared to individual rates: in 2026, the top federal rate of 37% hits trust income at just $16,000, versus over $626,000 for an individual filer.⁹ Because of that, income distributed to beneficiaries (who often have lower personal rates) is frequently taxed more favorably than income retained inside the trust. Ask your attorney and tax advisor how the distribution provisions shape the overall tax picture.

Estate Taxes

The federal estate tax exemption for 2026 is $15 million per person, or $30 million for a married couple, set by the One Big Beautiful Bill Act signed into law on July 4, 2025, with inflation adjustments starting in 2027.³ If your estate is below that line, federal estate tax isn’t an immediate concern, though some states impose their own estate taxes at lower thresholds. Assets in a revocable trust remain part of your taxable estate. Only an irrevocable trust, where you’ve genuinely given up ownership and control, removes assets from the estate tax calculation.

What Companion Documents Do You Need?

A trust doesn’t work in isolation. Ask which other documents your attorney will prepare alongside it.

A pour-over will is the most important companion. It acts as a safety net, directing that any asset still in your personal name at death gets transferred into your trust. Without one, any asset you forgot to retitle (or acquired shortly before death) passes under your state’s default inheritance laws, which may have nothing to do with your wishes. A pour-over will doesn’t avoid probate for those leftover assets, but it does make sure they land in the trust and are distributed on your terms rather than by statute.

Durable powers of attorney for finances and healthcare are typically prepared at the same time. They appoint someone to make decisions for you if you become incapacitated, covering accounts and situations that fall outside the trust. Together, the trust, pour-over will, and powers of attorney form a complete plan rather than a scattered set of documents.

What Will It Cost to Create and Maintain?

Attorney fees for a revocable living trust typically run between $1,500 and $5,000, depending on the complexity of your estate and where you live. Multiple properties, business interests, or blended family dynamics push you toward the higher end. Ask for a flat fee quote rather than an hourly estimate so you know the total before work begins.

Setup is only part of the picture. Ask about ongoing costs:

Trust tax return preparation. For an irrevocable trust that files its own Form 1041, professional preparation often starts around $1,500 per year and climbs with complexity.
Corporate trustee fees. A bank or trust company usually charges an annual fee calculated as a percentage of trust assets.
Real estate transfer costs. Recording fees vary by county but are generally modest.
Future amendments. Revocable trusts can be amended, but attorney fees for changes add up over time.

Weigh these numbers against the probate expenses and delays your family would face without a trust. In many jurisdictions, probate fees alone can exceed the lifetime cost of maintaining a trust.

How Often Should You Review the Trust?

Most estate planning attorneys recommend a review every three to five years, even without an obvious change. Tax laws shift, families change, and asset values move. A trust that fit perfectly five years ago may need adjustments today.

Certain life events should prompt a review no matter when you last looked:

Marriage, divorce, or remarriage
Birth or adoption of a child or grandchild
Death or incapacity of a named trustee or beneficiary
Significant changes in your assets or debts
A move to a different state
Changes in your health or long-term care needs

A change in federal or state tax law also justifies a review. The 2025 enactment of the One Big Beautiful Bill Act, which set the estate tax exemption at $15 million, is the kind of legislative shift that can change whether certain trust structures still make sense for you.¹⁰ At the initial meeting, ask how your attorney handles periodic reviews and whether that service is included or billed separately.

1
Consumer Financial Protection Bureau. What Is a Revocable Living Trust
2
Long Term Care Partners. Types of Trusts for Your Estate Which Is Best for You
3
Office of the Law Revision Counsel. 26 US Code 2010 – Unified Credit Against Estate Tax
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Justia. Testamentary Trusts Under the Law
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The American College of Trust and Estate Counsel. Understanding Special Needs Trusts
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Internal Revenue Service. Retirement Topics – Beneficiary
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Internal Revenue Service. Abusive Trust Tax Evasion Schemes – Questions and Answers
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Internal Revenue Service. Instructions for Form 1041 and Schedules A, B, G, J, and K-1
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Internal Revenue Service. 2026 Form 1041-ES
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Internal Revenue Service. Whats New – Estate and Gift Tax