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How to Build a Trust Fund

Original post by Amanda Webster of Demand Media

A trust fund may be necessary when transferring money to a minor.

A trust fund is a legal document created to hold assets for beneficiaries. They are often created to have more control over the process of passing assets on to heirs, and for tax purposes. The grantor, who is the person who creates the trust, can build a trust fund to pass assets to a non-profit organization or other entity. One of the main purposes of a trust fund is to avoid probate. Trust funds may also eliminate or reduce estate taxes and protect the assets of minor children.

Contents

Step 1

Determine the appropriate type of trust for your situation. You must first choose whether to set up a living trust or a testamentary after-death trust. If you choose to set up a living trust, you will transfer ownership of your assets to the trust while you are still living. In most cases, the grantor is also the trustee and maintains control of the trust. Upon the grantor’s death, assets may be quickly distributed to beneficiaries. Additionally, a living trust may be either revocable or irrevocable. A revocable trust may be rescinded at any time by the grantor, will an irrevocable trust may not be changed once it is set up. A testamentary trust is typically created after the death of the grantor at the instruction of the grantor’s will.

Step 2

Designate your beneficiaries, trustee, and any other relevant individuals or entities. Beneficiaries consist of individuals or entities to whom you would like to leave your assets. The trustee is the individual who administers and distributes the assets. For a living trust, you may choose to name yourself as the trustee. However, a testamentary trust requires that you select a trustee to administer the trust upon your death.

Step 3

Document your trust in writing. A testamentary trust can be set up simply by leaving all assets to your beneficiaries in your will, along with specific instructions stating how and when assets will be distributed.

Step 4

File a trust document with the state if necessary. Some states require that the grantor file an official trust document with the state. Consult with an attorney to understand the specific laws in your state.

Step 5

Transfer ownership of your assets to the trust fund. If you have chosen to set up a living trust, you must transfer ownership of assets to the trust. Payment of additional fees and taxes may be required when transferring assets to the trust fund.


                   

References

About the Author

Amanda Webster has a Bachelor of Science in business administration and a Master of Science in management. She is currently pursuing a Master of Arts in English with a concentration in writing and has been working as a freelance writer since 2008. Webster is also editor-in-chief of the Mount Mary College newspaper, "Arches."

Photo Credits

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