When you have a child, you immediately begin planning for their future. Protect the trust assets you want to leave behind for your child by setting up a trust fund.
Contrary to public opinion, a trust fund isn’t only a wealth management tool for the uber-wealthy. Anyone can set up a child trust fund as long as the proper steps are followed.
This guide will explain the nuances of how to open a trust fund for a child and help you determine if this is the right approach to protect your family’s future.
Is a trust fund right for you?
There are many ways to leave money and other trust assets to your heirs. Before we discuss how to start a trust fund for a child, let’s examine the situations where a trust fund is the best choice.
A trust document is helpful when you want to ensure that specific assets, such as trust money or property, are distributed and used in a specific way. Some of the benefits of opening a trust fund include:
- Money can last longer – A trust document allows you to dictate when and how assets are distributed to the beneficiaries. The ability to request installment payments means you can rest assured that your heir or heirs won’t burn through their inheritance right away.
- Avoid probate – Unlike a will which can be contested, a trust doesn’t have to go through probate for verification. Your heir will be able to access the asset more quickly.
- Protection of assets – The assets in a trust don’t actually belong to your children. Therefore, they don’t count toward their wealth. Money or property in a trust won’t disqualify your child from receiving benefits, nor will it cost them additional money in taxes.
- Tax savings – Wondering is a trust taxable? A trust fund might alleviate estate and gift taxes in the future, placing less of a burden on your child.
There are many benefits of having a trust. Trust funds are also a safe way to ensure a child with special needs is provided for when you pass away.
How to set up a trust fund
To understand how to set up a child trust fund, you must first understand how a trust works and the difference between a will and a trust. A trust can hold many different types of assets, such as:
These assets are held until the time they’re to be distributed. A trust involves several parties, including:
- Grantor – The grantor is the person who is starting the trust. They fill it with their assets to be distributed according to their wishes at a later date.
- Trustee – A trustee is a trusted third party who has been put in charge of managing the assets held in the trust.
- Beneficiary – The trust beneficiary is the person who receives the assets held in the trust.
When the time comes to distribute the assets, they are passed on to the trust beneficiary in accordance with the terms specified in the trust.
Before you establish a trust fund
It’s important to establish several things before you go through the legal steps to set up a trust fund. You should make sure that the following are clear:
- Purpose – Ask yourself why you’re setting up the trust. Do you want it to pay for college tuition? Fund the purchase of your child’s first home? Help your beneficiary start their own business? The purpose should be clearly stated in the language of the trust.
- Funding – How do you plan to fund the trust? Will it be in cash, property, stocks, or some other asset? How frequently do you plan to add to the trust?
- Management – You can select a trustworthy, reliable friend or family member to be the trustee. A bank or trust company can also manage your trust.
Setting up the fund
Once you’ve established these three components, you’re ready to set up the fund. There are three steps to opening a trust, including:
- Preparing the legal documents – An estate planning attorney will ensure that you fill out all of the proper paperwork and sign the trust deed. You’ll also need to apply for an EIN number for the trust.
- Opening a trust account – If you’ll be putting monetary assets into your trust, you’ll need to open a trust account at the financial institution of your choice.
- Transferring assets – Once you’ve established the trust legally, you can move assets into your trust accounts. If you’re putting property or stock assets into the trust, you can likewise move them to your trust fund.
To avoid having to set up a trust in person, simply fill out this form to apply for trust online right now.