If you have property and/or assets that you would like to pass along to your children, setting up a trust is one of the best ways to do so. But you may find yourself asking: How exactly can I set up a trust fund for my child?
What is the Difference Between a Trust and a Trust Fund?
First, let’s explore the difference between a trust and a trust fund. A trust is a legal document that determines how certain assets will be managed and administered. On the other hand, a trust fund is the legal entity that holds those assets following the creation of the trust.
How Can You Create a Trust Fund for Your Child?
In order to set up a trust fund for your child, you should begin by determining why you are setting up a trust, and who will be the beneficiaries of the trust. Once you have thought through these aspects of the trust, you will then want to outline how the trust will be funded – i.e. what assets will be held in the trust.
Once you have decided on the purpose of setting up the trust, as well who will be named as the beneficiaries of the trust and what assets will be placed in the trust, you will want to figure out who will be the trustee – the person in charge of managing and administering the trust when the appropriate time comes.
After this, the trust documents can be set up, and you can transfer your desired assets into the trust.
What Are the Benefits of Setting Up a Trust Fund for Your Child?
So, why set up a trust fund for your child? The answer to that question: There are many benefits to doing so. A few of the many benefits of setting up a trust fund for your child include:
- The ability to pass assets on to your child or multiple children
- Can reduce estate and gift taxes
- Avoiding probate
The ability to pass assets on to your child or multiple children
It is very likely that you have assets that you will want to pass on to your children. Creating a trust, and subsequently a trust fund, is a great way to specify exactly how you want the assets distributed. For example, you can have a certain amount of money in the trust that you only want used for your child’s college tuition and nothing else.
Can reduce estate and gift taxes
Setting up a trust can potentially help reduce future estate and gift taxes, depending on your specific scenario.
A trust is not subject to the probate process, as the assets in the trust have already been transferred to the trustee for the purpose of managing those assets for the beneficiary – therefore, there is nothing for the court system to determine in regard to the distribution of the assets.
How Can You Avoid Some Common Mistakes That Occur When Setting Up a Trust Fund?
You will want to be careful to avoid making certain mistakes when setting up your trust. To avoid making mistakes, you will really want to determine who a reliable trustee will be. By choosing the wrong trustee, the management and distribution of the assets can become more complicated than it needs to be. Additionally, you should include asset protection provisions and review your trust continually.
For any assistance with creating and/or updating your trust, or any other estate planning needs, we are here to help. Contact us today to learn more about how we can assist you with your needs.
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