ESTABLISHING A TRUST FUND
People often associate trust funds only with the wealthy. But a trust fund ("trust") actually can be an effective financial tool for many people in many circumstances.
What is a Trust?
A trust is a separate legal entity that holds property or assets of some kind for the benefit of a specific person, group of people or organization known as the beneficiary (beneficiaries). The person creating a trust is called the grantor, donor or settlor.
When a trust is established, an individual or corporate entity is designated to oversee or manage the assets in the trust. This individual or entity is called a trustee. A trustee can be a professional with financial knowledge, a relative or loyal friend or a corporation. There are pluses and minuses to each type of trustee. An individual trustee may provide a more personal touch, but may die or move away. A corporate trustee may be less personal but provides experience, investment skills, permanence and impartiality. More than one trustee can be named by the grantor if he or she wishes.
Setting Up a Trust Fund
Establishing a trust requires a document that specifies your wishes, lists beneficiaries, names a trustee or trustees to manage the assets and describes what the trustee or trustees may do. For a living trust, you can name yourself as trustee but, if you do, you should also name a successor trustee to take over if you should become disabled or when you die. Once the document is completed, you must transfer the assets to the trust. Keep in mind that, in the case of certain assets, such as real estate, you may incur fees and transfer taxes.
Some states require you to file a trust document with the state. To find out about your state's laws regarding trusts, talk with an attorney who specializes in estate planning.
Reasons to Set Up a Trust Fund
Some common reasons for setting up a trust include:
- To provide for minor children or family members who lack financial experience or who are unable to manage their assets.
- To provide for management of your assets should you become unable to oversee them yourself.
- To avoid probate and transfer your assets immediately to your beneficiaries upon death.
- To reduce estate taxes or provide liquid assets to help pay for them.
Remember This
Whether it makes sense to establish a trust depends on your individual circumstances. Keep in mind that you may not need to establish a trust to accomplish these and other financial goals. A well-written will may distribute your assets appropriately. Check with a lawyer before deciding if a trust is right for you.
