“I will always be around you even when I am gone”. Go through this article to find out the simple steps for how to start a trust fund.
How to mean this gesture to your loved ones in real life? Is it even possible? Yes, it is possible through trust funds. You can set up a trust fund for your dear children to provide for them even when you are gone. Sounds reassuring, doesn’t it? But how to start a trust fund? That is what this article is all about.
Well, we love our little children, and we are always ready to provide for them even when we are not around. Trust funds help your loved ones during your absence, and you do not need to be a millionaire to start a trust fund.
What Is A Trust Fund?
Before you learn how to start a trust fund, it is important to know what a trust fund is. So there are three important terms associated with a trust fund. Here are the three terms that makeup a trust fund –
- Grantor: the person who transfers properties or other assets to the trust fund.
- Trustee: a trustee is a person who manages the trusts and distributes these assets for the benefit of the beneficiary according to the terms of the trust.
- Beneficiary: the beneficiary is the person who this trust is meant for. The grantor creates a trust fund for the beneficiary.
So, simply put, a trust fund is meant for a beneficiary and granted by their parents or a guardian figure. A trustee also manages and distributes the assets granted in the trust fund. There are many benefits to having a trust fund for someone.
A grantor can avoid probate on their assets by creating a trust fund. Also, it allows them to protect the privacy and life of their loved ones.
Also, the trust can be managed according to the wishes of the grantors once the trust is created. Trust funds also allow the grantors to set certain provisions or rules regarding how, why, and when the assets need to be distributed.
For example, if a grantor creates trust for their children when they are young, they can make the assets available for them at a certain age – for instance, when they are adults or in college.
Set Up A Family Trust: How To Start A Trust Fund?
So how do you set up a family trust for your now-young family member? Here are some of the most important details regarding how to set up a trust fund for your children –
Ready Your Goals For The Trust
The whole purpose of creating a trust fund is to protect your family members. But when you start a trust fund, it is important to be clear on your goals. This clarity concerns the terms and assets you will include in the trust you are creating for your loved one. Make sure to include the assets that will not become obsolete and will help secure their future.
Determining your goals also means outlining different provisions for them to acquire the assets. For example, you may want to leave your antiques and jewelry to your elder daughter. You can also make sure that your second born son receives the car collections you own. You can also leave a fund for the youngest child to pay for their college fees.
You can also set provisions regarding a certain age when the children can access the assets in the trust fund.
1. Choose The Type Of Trust You Want Them To Have
There are both recoverable and irrecoverable trusts. You can choose between both types of trusts for your children.
Recoverable trusts, or RLTs, are common types of trusts. These are flexible in assigning provisions. You can also choose to add and remove beneficiaries at any point in time. You can also choose to cancel RLTs if you see that there is no need for it.
The irrecoverable trusts are complete opposites. For these, you cannot make changes after you create them. But there is a benefit to setting up an irrecoverable trust. These trusts are not subjected to estate taxes. Most Americans opt for RLTs for their flexibility of use.
2. Choose The Terms Of Your Trust
So, we are at the third and one of the key steps of your query – how to start a trust fund? Now you have to set the terms of the trust.
- First, You Have To Choose A Trustee who will manage the trust on your behalf. A trustee has to oversee the assets’ distributions and make sure that the beneficiaries have access to them on time. You can also choose yourself as a trustee, but that will require you to choose a successor trustee.
- Secondly, You Have To Determine The Distribution. You have to read a process for perfectly distributing the assets among the beneficiaries. This part also concerns making sure which beneficiary receives which part of the trust’s assets. You can outline them clearly in this part.
- Thirdly, Set Provisions: this part is all about determining when and how the assets will get distributed among the beneficiaries. It can be based on a certain age or at a certain period of their lives.
3. Create The Trust Document
Since you are done with making decisions about the trust, ready the trust document and execute them according to your state laws. Usually, grantors have to sign the documents while you have two witnesses present. The witnesses should also sign.
4. Fund Your Trust
Now that you are done with creating trust for your loved ones, it is time to fund them with assets. Depending on the type of your trust, you can fill them up with different assets such as –
- Real estate properties.
- Life insurance & bank accounts.
- Life insurance policies.
- Digital assets.
- Non Cash assets.
- Personal items (valuable antiques, collectibles, heirlooms, etc.)
This part of creating a trust fund might take some time. But this time is decisive. Many experts also advise working with an estate planning attorney if it feels difficult to process all by yourself.
Grantors often make common mistakes like choosing the wrong trustee, releasing funds too early, or adding coarsely restrictive provisions. However, if you have an estate attorney guiding you, then it should not be too overwhelming.
Did you find all you need to know on ‘how to start a trust fund?’ Please let us know your experience reading this article. Also, if you have any additional queries, we would also love to answer them. Thank you for your time.