a legal document

Trust funds were once associated with high net worth individuals as a way to pass money to their heirs or charitable organizations. But trusts are fast becoming a popular tool for everyone, wealthy or not, as a solution in their estate planning.

What is a trust fund?

Trust funds are legal arrangements that allow individuals to place assets in a special account to benefit another person or entity. Trust funds can be complex and often require the assistance of an attorney to set up, though there are online tools for the do-it-yourselfer. The different types of trusts available include testamentary trusts (which are based on a will), living trusts, revocable trusts or irrevocable trusts. Wills can be created online or with the help of an attorney.

What is the purpose of a trust fund?

A main reason for creating a trust is to control who receives your assets. You can assign assets through a trust during your lifetime or at your death (via your will). For instance, you may want your trust fund to provide for a family member’s education or to help with the purchase of a first home. A trust can also lower your estate taxes and help you avoid probate, the legal process that requires someone to prove a will is valid.

Different types of trust funds

The process for setting up a trust depends on several things: the type of trust you want, your assets and the beneficiaries. To determine the right trust for you, first identify the reason you want to set up a trust, then the beneficiary. For instance, if you decide you want to help pay the college expenses of a grandchild, an educational trust would be recommended. On the other hand, if you want a straightforward, cost-efficient method for passing your assets to your family after you die, a revocable living trust might be the best option. This type allows you to change or amend the trust anytime during your lifetime.

From there, choose how you want your trust’s assets to be managed and dispersed. Designate a trustee or group of trustees, such as an attorney or trusted relatives, who will uphold the purpose of the trust and handle and distribute the funds according to your wishes. Decide how you want the funds distributed, such as in a lump sum at a certain date or in specific amounts paid out at regular intervals: monthly, yearly, biennially, etc.

Transferring assets

The next step is to choose the amount and type of funds to move into your trust. Trust funds can consist of a range of assets, including such items as cash, real estate, stocks, bonds, artwork, classic cars, collectibles and family heirlooms. You can place these assets into the trust all at once or make a series of additions and deposits over time.

Transferring assets into the trust from different financial institutions will necessitate various paperwork at each institution. It's important to keep things organized. You can download our personal info organizer to help keep track of all of your accounts in one convenient place. After your assets are moved and the trust is funded, your trustee will manage those assets as stated in the trust document, for the benefit of trust beneficiaries.

If you have a variety of assets and stipulations in your trust, consulting an attorney may be worthwhile to ensure that your trust is set up properly and that trust administration runs smoothly.

No matter your financial situation, setting up a trust is an excellent financial tool for ensuring your estate and beneficiaries are well served. Use our tools and calculators to get help making the right financial choices for your situation.

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