In popular culture, a trust fund is often a term that is reserved for the rich and famous. But the process of setting one up is not as exclusive as it may seem. If you have all of the information you need, you can set up a trust fund to secure assets or benefit someone you care about.
Benefits of a trust
When you die, the distribution of your assets is typically done through a probate, which is public and can take several months to complete. With a trust fund, you avoid the public nature of a probate and your beneficiaries can typically gain access to the assets much faster. You also have more control with a trust fund. For example, if you wish for your children to reach a certain age before receiving the assets, you can do so with a trust fund. An additional potential benefit of a trust fund is tax savings. Some trusts can lower estate taxes, although your financial situation may not require you to do so in the first place. It is always best to discuss these options with a financial advisor before making any decisions.
Collect vital information
The first thing you need to do is collect the necessary information that will be asked of you when setting up the trust. This includes — but is not limited to — the grantor, who is the person moving assets to the trust; the beneficiary receiving the trust; the trustee, who administers the trust; and the assets that are to be placed into the trust fund, such as real estate, stocks, bonds, cash, or other items. You will also need to plan how long the trust will last, who will serve as the manager of the trust and its assets, and how they will be managed in regards to distribution. Once you have most of this information, the next step is finding an estate planning lawyer.
Finding an attorney
Although you may feel as though you are the best person for the job, you want to hire a reputable estate planning lawyer who understands trust laws for your state. According to investment expert Joshua Kennon, you will want your lawyer to, “create a declaration of trust or the full trust instrument.” The trust instrument is a legal document that essentially includes all of the vital information you collected regarding the trust and its assets. Once the paperwork is drawn up, including things like a trust declaration, you will need to sign to officially create the trust. In most cases, the trust fund entity will need a taxpayer identification number (TIN) so the trustee can file tax returns on the trust’s behalf. Not acquiring a TIN can cause many financial headaches for the trustee in the future.
More to consider
There are various types of trust funds you can contribute to, depending on your needs. Some examples include an education trust, which requires the beneficiary to use any money or assets solely for educational purposes; a charitable trust, which is irrevocable and can be sent to one or more charities; or a generation-skipping trust that allows you to transfer money or assets to your grandchildren or other individuals who are at least 37.5 years younger than you. Your financial advisor can guide you on which type of trust will work best for your situation.
Although it may seem complicated at first, setting up a trust fund can be a beneficial way to protect people you care about or ensure that your assets are managed well after your death.