How to Set Up a Trust Fund
If you’ve spent your life working to build up your finances, you will eventually need to take precautions around transferring your money and assets to loved ones or charities. At that time, you will need to learn how to set up a trust. Similar to a will in many aspects, establishing a trust is an estate management tool that dictates the standards, prerequisites, and terms of how your properties and assets will be handled when you pass.
After you’ve learned how to create a trust, you’ll see that you have greater control over how this allotment is dictated. By creating a trust, you can manage the level of privacy and terms associated with transferring your finances. When setting up a trust fund, you can also help your family avoid overburdened taxes, probate, and superfluous paperwork.
Here is a quick guide covering how to start a trust fund.
What Is a Trust?
The first step you should take if you want to create a trust is to determine what function the trust needs to perform. The most common types of trusts and their functions include:
Inter Vivos Trust (Living Trust)
This is when you set up a trust while the grantor is still living.
Testamentary Trust
This type of trust appoints a trustee to manage the deceased’s assets according to their last will and testament.
Revocable Trust
A revocable trust is a living trust that dictates provisions subject to the alteration of the grantor.
Irrevocable Trust
A living trust that cannot be altered or canceled by the grantor without the explicit permission of the listed beneficiaries. This form of trust is beneficial for tax-saving purposes.
While this is not an exhaustive list of the various forms a trust can take, these are the most common that you will encounter. The bottom line of establishing a trust is that the grantor has legal protection over their assets and those will be distributed according to their wishes. The point of learning how to start a trust is to save time, eliminate unnecessary paperwork, and reduce inheritance tax.
Why Should You Create a Trust?
Determining how to set up a trust should only be done if it makes sense to establish one in the first place. If you’ve acquired a significant financial standing throughout your life, you may have to make some hard decisions as to how those assets should be distributed.
To help decide if learning how to set up a trust is something you should consider, you need to take inventory of all your assets, and everyone who might possibly make a claim to all or a portion of them should you pass.
You will then need to think of any mitigating circumstances that should be considered when allocating the assets. These might include leaving assets to:
- Your spouse, but not their children from a previous marriage
- Your children, but not their spouses
- Your children, granted that they finish higher education
The stipulations you create should be specific but not too constraining, otherwise you run the risk of them being contested. To ensure you create an air-tight trust, you should speak with an attorney and your dedicated accounting firm. If you find yourself in need of dictating circumstances surrounding how your estate should be distributed, creating a trust is probably a necessity.
How to Set Up a Trust Fund
There are five main steps of how to set up a trust:
1. Determine What Type of Trust You Want to Establish
As specified above, there are a variety of trusts that can be drafted. However, to ensure that you make the best choice, you should speak with your certified accountant.
2. List the Details
When creating a trust you need to outline who will be the grantor, what assets are to be distributed, who will receive the assets and under what conditions, and who will execute your wishes (trustee).
The trustee is the most critical aspect of establishing a trust fund, as they will have the fiduciary responsibility of maintaining the estate.
If you’re drafting a living trust, you may be the grantor and the trustee, however, it’s wise to appoint a successor in the event that you pass unexpectedly or become unable to manage your estate properly.
3. Formalize Your Deed of Trust
It’s possible to draft and formalize a trust by yourself online, however, this isn’t the safest option. Trusts, especially those governing large estates, can quickly become complex affairs and may require the services of a professional.
4. Place the Funds into the Trust
With your Deed of Trust in hand, you will need to go to the bank or equivalent financial institution and create a trust fund account. Different institutions may have different processes for establishing a trust fund account. However, the basic premises will pertain to all in that you will need to provide the names of the trustees and the funds.
5. Register the Trust with the IRS
After you’ve set up the new account, you will have to register it with the IRS, receiving a unique taxpayer identification number (TIN).
Organize Your Trust with Porte Brown
Learning how to set up a trust is an excellent way to properly formulate an estate plan. It guarantees that your wishes are honored and ensures that your finances are distributed according to your requests.. However, setting up a correctly outlined trust can be complex, and thankfully that’s where Porte Brown comes in. We can guide you in building a trust that adheres to your wishes. Contact us today.
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Planning for retirement invariably comes down to making sure you save enough during your working years to build up a nest egg to use during your golden years. But what happens beyond retirement? Have you thought about your legacy and what you'll leave to your family and friends once you're gone?
