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How a Trust Fund Works

Trust Funds: Everything You Need To Know

A trust fund is a tool that helps you plan your asset base if you die or become incapacitated. It does so by determining a legal body to hold your property in case something happens to you, with the help of a neutral party known as the trustee. A trust fund can hold various assets on your behalf, including cash, real estate property, business premises, or a collection of other properties or assets you may own.

Keep reading to know more about trust funds and how to set one up. 

What Does A Trust Fund Entail? 

A trust fund usually requires three parties: the grantor, beneficiary, and trustee. As the grantor of a trust fund, you will need to stipulate expressly or in writing how your assets should be held, collected, and disseminated to the relevant parties after your death or incapacitation. The trustee, in this case, acts as the neutral party by managing your fund’s assets and being responsible for instituting its directives. Lastly, beneficiaries in a trust fund are the individuals that will receive the assets from the fund.

How Can A Trust Fund Benefit You?

Setting up a trust fund is essential, particularly for the individuals you intend to pass on your wealth to after your passing or incapacitation. Some of the benefits of trust funds are:

  • Keeping your beneficiaries protected: If you intend to pass on your wealth or assets to your family members with no relevant expertise, you can set up a trust fund and appoint someone more qualified to manage the assets on their behalf. If the trust fund is for your children, you must stipulate that the assets will go to them at a specified age.
  • Protection of wealth and other assets: Setting up a trust fund will ensure that your assets stay safe from any interference from other parties other than your beneficiaries. For instance, if your trust fund’s beneficiaries are your children who undergo a divorce after you pass away, you can structure the fund to bar the spouse from claiming the assets.
  • Minimizing the liability of estate tax: The federal estate tax will apply to your assets if you die. Setting up a trust fund before your death ensures that you reduce your estate’s size and can significantly minimize or do away with any estate tax.
  • Steering clear of probate: The probate process happens when your beneficiaries gain access to your assets through the decision of a probate court. Even though this procedure ensures that your beneficiaries get their accurate and fair share, the whole process may be a waste of time and costly. Placing your assets in a trust fund will ensure that the assets go to the proper party without necessarily requiring the probate process.

What Are The Different Types of Trust Funds? 

The type of trust fund you set up depends on your objective of the fund and the advantages it has for your beneficiaries. Also, different states have laws stipulating what kinds of trusts are allowed. The laws may also govern the process of creating trusts and how they operate. Thus, it is essential to confirm if the state you live in allows or permits the type of trust fund you want to set up. 

Some examples of trust funds are:

  • Irrevocable Trust: You are not permitted to change this type of trust once created. An irrevocable trust will be ideal if you are concerned about estate taxes or want to keep your assets protected from future creditors.
  • Revocable Trust: This type of trust allows you to place assets during your lifetime. You can make changes or revoke them if you are still alive. The trust only becomes irrevocable upon your death.
  • Special Needs Trust: This is a trust you can create to cater to the disabled or incapacitated beneficiary.  
  • Charitable Remainder Trust: The purpose of this trust is to dispense assets to a particular charity group when the trust ends. Prompt tax credits are an example of a benefit you can get from this type of trust fund. Your beneficiaries may also be eligible for a fixed-percentage income for the entire trust period.

Setting up a Trust: 5 steps for Grantors

  1. Decide what assets to place in your trust. …
  2. Identify who will be the beneficiary/beneficiaries of your trust. …
  3. Determine the rules of your trust. …
  4. Select your trustee or (trustees). …
  5. Draft your trust document with an attorney.

Key takeaways

  • Creating a simple trust could cost less than $100 through a digital service.
  • Having a lawyer create a trust for larger or more complicated estates could cost you $3,000 or more in some places.
  • Consider drafting other estate planning documents — like a will or power of attorney — at the same time as your trust.

How Can You Fund Your Trust? 

Funding your trust refers to moving your assets into your trust. A trust acts as a living entity that will own the assets you transfer to when you are alive. The trust then distributes these assets to your beneficiaries after your death. 

In this case, the trustee has the responsibility of temporarily managing your fund’s assets, before transferring them to the official recipients who are your beneficiaries. 

Funding your trust is mandatory; otherwise, it serves no purpose. If you fail to transfer the assets or funds properly, the trust will not achieve its goals. 

Any assets improperly moved to the trust will revert to you as a grantor. This will then prompt the probate court to distribute such assets under the intestate succession laws of your state.

Note that it is possible to fund your trust before or after your death. If you wish the entire process to go on per your wishes; funding the trust while still alive is your best option. You will need to change all property with titles to reflect the trust’s ownership.

You may also use a “pour-over will” to fund your trust after you pass away. This will “captures” any unremembered asset and send it to your trust. While the assets may still need to pass through probate, they can still be dispensed per your trust stipulations.

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Do You Need An Attorney To Set Up Your Trust? 

You don’t need an attorney to create a trust. All you need is an understanding of how trusts work and you will be good to go. However, it makes sense to work with an attorney to set up your trust in specific scenarios.

How Can You Set Up a Trust Fund?

Setting up a trust fund requires establishing the type of fund that best suits you. Thus, ensure you determine the exact purpose of the trust fund you intend to set up before deciding how to fund it. 

You’ll also need to choose and appoint the individual who will act as your trust fund’s trustee. A trustee will also assist you in drafting all the documents you need when setting up your trust fund and going through the legal process. 

Lastly, you will need to fund the trust fund. Like any other business venture, ensure that the type of trust fund you choose is best for you and your beneficiaries. It should also be one you can afford. 

The US Will Registry offers you a platform where you can easily register your trust fund. 

Register Your Trust Fund Today 

Setting up a trust fund is crucial as it will ensure that your beneficiaries get what they rightfully and fairly deserve. Your loved ones, trustee, or attorney will also know where your trust fund documents are without much hassle, minimizing any possible disagreements. Contact us to register your trust fund today!

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