Table of Contents
What is a trust fund?
How trust funds work
- Grantor: The party who creates the trust document, fills the trust fund, and appoints a trustee to manage the assets within the trust fund is known as the grantor.
- Trustee: The party who the grantor appoints to manage assets within a trust fund is the trustee. For Revocable Living Trusts, most people appoint themselves as trustee so they retain control of their assets during their lifetime. For other types of trusts, individuals may have to appoint a third party to act as their trustee.
- Beneficiary: The beneficiary is the party who will inherit the assets within a trust fund.
Types of trust funds
- Asset protection trust: Use an asset protection trust to protect your assets from creditors.
- Blind trust: Create a blind trust to protect the trustee's identity from the beneficiary so they don't know who controls the trust.
- Charitable trust: Create a charitable trust to benefit a particular charity and leave behind a sizable donation.
- Spendthrift trust: Use a spendthrift trust if you want to add restrictions on how your beneficiary can spend or sell the assets within the trust fund.
- Testamentary trust: Create a testamentary trust if you want to leave specific instructions for your beneficiaries after your passing.
How to set up a trust fund
- Create a trust document: Depending on how much control you want to retain, you can create a Revocable Living Trust or an Irrevocable Living Trust. Then, provide a detailed and accurate description of each asset. For your financial accounts, include the account number and financial institution.
- Print and proofread your trust document: Pay special attention to the asset descriptions, your trustee's contact information, and any clauses you wrote yourself.
- Inform the trustee(s) about their duties: Trustees must manage the property in the best interest of their beneficiary.
- Sign your trust document: Sign with your trustee and any witnesses in front of a notary public. Using a notary public is important as many banks and private institutions will be hesitant to accept a living trust that is not notarized.
- Transfer property ownership to the trust: Use either a
or a Warranty Deed if you are transferring real estate. Use either a Quitclaim Deed or a Bill of Sale if you are transferring tangible personal property without a title or registration, such as jewelry or furniture. Gift Deed
- Learn about estate tax exemptions: A trust fund may not protect you from the federal and state estate taxes that become payable when you die. Your trustee may have to pay estate taxes out of your Living Trust.
Benefits of a trust fund
- Control who inherits your estate: If you have a blended family and want your biological children to inherit certain assets, a trust fund can ensure that they are the beneficiaries of its assets.
- Ensure your privacy: Trust funds are private and don't go through probate court which leaves public records. This keeps certain individuals from accessing details of your asset distribution.
- Set an age limit: If you don’t think a beneficiary will be ready or mature enough to access a trust fund until they're older, you can set up a trust that is inaccessible until a certain age.
- Specify usage requirements: Create a spendthrift trust to stipulate specific usage rules for the beneficiary of your assets.
- Protect your beneficiary: Prevent a beneficiary from spending all the money in a trust fund at once by specifying that the money is paid out periodically.