Four Basic Steps in Setting up a Trust Fund

trust fund

trust fund gives you control over who will receive your assets during your lifetime or after your death. While many people have heard of trust funds before, they don’t know how to set up one. If you’re clueless on how to set up your own trust, don’t worry as we’re here to give you the basic steps.

Choose the right type of trust fund

The type of trust you wish to create is mainly dependent on what you plan to do with it. Trusts can either be revocable or irrevocable.

  • Revocable trust. Also called a living trust, it is a trust that can be altered over time. You can remove and assign new beneficiaries, as well as modify as to how assets within the trust are managed.
  • Irrevocable trust. The terms in this type of trust are set in stone once the agreement is signed. No changes can be made except for exceedingly rare circumstances.

Given the flexibility of a revocable trust, it would make sense to choose it over an irrevocable trust. But a revocable trust has its disadvantages.

Irrevocable trusts offer tax-shelter benefits, while revocable trusts don’t. Irrevocable trusts remove the assets from the benefactor’s taxable estate, which means that they’re not subject to estate tax upon death. Likewise, in a revocable trust, the grantor keeps ownership of the assets, so there’s always the possibility of losing them to lawsuits or creditors.

Make sure that the trust is well-elaborated

First, list down the assets you want to put in the trust. These can include your cash savings, bank accounts, investments, stocks, real estate, among others. After this, decide who will be the beneficiaries and the trustee or trustees. The trustee is the person who will oversee and manage the trust. You can pick your spouse, a close relative, or a friend. You can also choose a corporation, such as a bank or a trust company, to be your trustee.

Then, lay down the specifics of the distributions. How will the assets be managed? How much will each beneficiary receive? What percentage of the trust’s annual income should be used? How long will the trust last before terminating? Under what conditions will it stop?

trust fund

Hire a reputable attorney

In setting up your trust fund, you will need the help of a reputable attorney. A reliable financial planner or an estate planning attorney is generally the ideal advisor to connect with. They can help you better understand the steps you need to take, such as registering your trust with the Internal Revenue Service (IRS), transferring your assets to your trust fund, and ensuring that all paperwork is in order. Trust law varies from state to state, so hire an expert who can help you navigate through these nuances.

Move your assets and register the fund with the IRS

Once everything is ironed out, you’ll be ready to fund your trust. Your chosen assets will be moved away from your estate and into the trust. After you’ve moved your assets, you’ll need to register the trust with the IRS. Again, have a lawyer to assist you in these crucial final processes.

Setting up a trust can be a saving grace for your family when you pass on. It’s a great way of thinking ahead and considering the legacy you’d like to leave behind.

About Faye Gonzales 1658 Articles
Meet our chief explorer, Faye Gonzales. With over a decade of travel experience, Faye is not only a passionate globetrotter but also a loving mom who understands the unique needs of family travelers. Her insights into family-friendly destinations and travel tips make her a trusted guide for parents seeking memorable adventures with their children.