How to set up a trust fund

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.

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 revocable or irrevocable trusts, and living or testamentary trusts, which is based on a will.

Reasons for creating 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 after death. 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.

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. For a living trust, you can assign yourself as a trustee. 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, bi-annually, etc.

Different types of 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, artworks, classic cars, collectibles and family heirlooms. You can place these assets into the trust at once, or make a series of additions and deposits over time.

This is where trusts can become complicated, and where an attorney’s help could pay off. Transferring securities and holdings from different financial institutions into your trust, which may be held separately, typically requires a lot of paperwork and expertise to avoid errors. After your assets are moved and the trust is funded, set up an investment plan that will allow those assets to grow for as long as they remain in the trust.

If you have a variety of assets and stipulations in your trust, consulting an attorney may be a worthwhile investment to ensure its set up smoothly and free of mistakes.

No matter your financial situation, setting up a trust for retirement 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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