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Setting Up a Trust Fund


Popular culture has created an association between trust funds and the wealthy. It’s a gift rich parents bestow on their kids, or worse, a way for the super-rich to hide assets from the tax collector. There’s a nugget of truth in both stereotypes; you can use a trust fund to provide money for young people. You can also avoid certain tax liability through setting up a trust. However, the financial tool isn’t just for the rich, because even those of more modest means can take advantage of the benefits of a trust.

With the trend today toward DIY finance, some may try to set up a trust themselves. However, it would be wise to consult with a financial advisor, an experienced estate lawyer, or both before diving into the process. Your advisor can help with the “why,” “what,” and “how much” questions, while the attorney will help make sure the document is legally enforceable.

If you wish to leave money to your children or grandchildren, and control how that money is used, a trust may be the right option for you.

How a Trust Fund Works

A trust fund is a special type of legal entity that holds assets to be used to benefit another person, group, or organization. Trust funds are popular because they help you control when and how your heirs can access assets that you have set aside for them. The most straightforward way to use a trust is to ensure that your heirs have timely access to your wealth. There are also some significant tax advantages that can be achieved when using trust funds as well creditor protections. 

Why Create a Trust Fund

There are a few good reasons for setting up a trust as opposed to relying on a posthumous will. You will retain control of a revocable trust while you are alive. You can alter it to meet changing circumstances. You can also combine purposes -- for example, you can set up an educational trust that can only be used to meet college expenses for the grandkids, and you can also direct the trust to give them some spending money upon your death. You can use a trust to help your family avoid inheritance taxes in several ways (however, these methods involve using irrevocable trusts, and are not as flexible).

Seek Advice From the Pros

There is no set way to fund your trust, only the one that works best for you and your family. You may have concerns about losing control of certain assets, like stocks in a volatile market, so funding a trust with those assets might give you some concern. These are the kinds of issues you will work out when discussing your estate plan with a financial advisor. Gather your financial information and give some thought to the “why” question. Together, you’ll work out the rest.

You will incur some expenses setting up your trust, especially if you seek help from professionals. However, they may save you and your family money over time. DIY websites make setting up a trust seem easy; however, you have a lot of risk that you can minimize from seeking quality advice.

This content is developed from sources believed to be providing accurate information. The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.