How to Set Up a Trust Fund

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Trust funds allow individuals to place their assets in an exclusive account. That money then benefits another user or entity.

In the past, they were associated with individuals with high net worths. Nowadays, though, they are a popular tool for anyone looking for an estate planning solution.

Still, this legal arrangement is complex, often requiring the help of an attorney. There are several ways to do it, depending on your goal. Today, we’re looking at the basics of setting up a trust fund.

Why Create a Trust Fund?

The main reason people create such funds is to control who receives their assets during their lifetime or after death. Most often, they serve as funds for family members’ education and home purchases. Plus, a trust can lower estate taxes you have to pay.

Setting up an account like this depends on three main things – type, assets, and beneficiaries. The first step involves determining the reason you want to set it up and for whom. Doing so helps you choose the right type.

From then on, you need to decide how you want the assets managed and distributed. Here, you also have several possibilities.

Asset Types

Trust funds can contain a wide range of assets, which you can place in your account at once or add them over time. These include:

  • Cash
  • Stocks
  • Bonds
  • Real estate
  • Artworks
  • Collectables

Multiple assets are where it gets complicated. Transferring assets from various financial institutions into your trust requires a lot of paperwork. Moreover, you should set up an investment plan to have your assets grow in value.

Step by Step Guide

Next, let’s take a look at an action plan to follow for setting up a trust fund.

Find a Reputable Attorney

Once you decide on the purpose of your trust, you should see a reliable estate lawyer in your state. It’s crucial to find a local attorney. Although many parts of the process have been standardized, related laws vary from one place to the next.

Your lawyer will create a declaration of trust, a document establishing the fund, and codifying the ins and outs of it. This process can be quick and straightforward or lengthy, depending on the size of your trust.

Still, having an experienced professional on your side is a sure way to ensure everything goes as planned.

Register the Trust

Often, the trust fund needs a taxpayer identification number and to file stand-alone tax returns. So, you’ll need to register your fund with the IRS or a similar service.

Transfer Assets

Next, retitle the properties you want to transfer into your new account. You’ll need to visit the place where your assets are kept, no matter which you’re relocating and sign it over to the trust.

If you’re cash-funding, you need to open a bank account to which you’ll deposit the cash.

Trust Administration and Accounting Records

Finally, your trust must get administered according to its legal guidelines. There should be regular, detailed accounting records of the fund to protect you in case of a lawsuit.

You could handle these tasks yourself at first, but you’ll need to name an attorney to carry them out later or in the case of your death. It’s possible to separate the tasks into functions and source them among various people and institutions, but that’s not necessary.

Today, many financial service companies offer all-in-one packages of corporate trustee services, administration, investment management, and accounting. Hiring such a service is a fool-proof way that your funds will remain safe and sound.

Other Options

If you don’t like the idea of a trust fund, there are other possibilities, although no other gives you as much control over your assets as a trust fund. Here are the two most prominent alternatives.


While writing a will costs less at first, your property will become subject to more taxes. Plus, if the will gets contested, it may lead to most of the money not being spent in the way you intended it.

Custodial Accounts

These accounts serve for you to place money and have another person use it for education. However, if the beneficiary is attending college, they could use the money for other expenses you can’t control.

The Bottom Line

Even if you don’t have a high net worth, a trust fund could be the right solution for you to leave money to other people and control how it gets used.

It offers you a way to protect your assets while providing for a loved one. So, if you’re considering the option, have a chat with a professional and go on – in most cases, it’s a good idea.

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