You don’t need to be a millionaire in order to take advantage of a trust fund. If you have a few thousand dollars that you want to make sure helps a person, group or organization, a trust fund is one of the best ways to ensure that money is used for the purpose you intended. How do you create a trust fund, though? What are the first steps you need to take?
Figure Out the Trust Fund’s Key Details
The first thing you need to do is establish the rules and guidelines for the new trust fund. Sit down with a pen and paper and write down why you’re creating the trust. What do you want to accomplish with it? What do you want done with these assets and equally importantly, what do you not want done with them?
Once you have the big picture in place, it’s time to gather and organize some key details. Some of the things you’ll need to specify include:
- Who is the grantor?
- Who is the beneficiary?
- Who will be the trustee?
- What assets will be placed in the trust fund?
- How will the assets be managed?
- Who will manage the assets if it is not the trustee?
- Is the trust revocable (it can be changed) or is it irrevocable (it cannot be changed)?
- How long will the trust fund last before it ends?
- Under what conditions, if any, will the trust fund cease to operate?
Talk With an Attorney
After you have all your facts in order, you should schedule a meeting with an estate planning attorney. Spend some extra time to make sure the attorney you select is reputable, even if they cost more.
You’ll also want to make sure your attorney knows enough about trust funds to help you select the state in which you want the trust fund domiciled. This is important—the state laws used to create the trust fund will have an enormous influence over how the courts oversee it. This may require you having to visit an attorney in your preferred state.
Once you know the state in which you want your trust fund domiciled, your attorney will create the legal documents that establish the trust fund. They will include all the specifications you wrote down in the first step, which can be as detailed as you want it to be. You should definitely go over the documents afterward to make sure your wishes are being carried out properly.
Register the Trust
Once the documents have been created and you’ve signed them, you’re ready for the next step—registering your new trust fund with the IRS. The trust fund will require its own taxpayer identification number, or TIN, so it can file its own tax returns, as well as open up financial accounts at credit unions, brokerage firms and other financial institutions.
You can register your trust online at the IRS’s website, or you can download Form SS-4, fill it out and mail it. Your attorney may also be willing to do this for you, although they will probably charge you to do so.
Transfer Assets into the Trust
Next, you’ll need to transfer the assets you own into the trust fund. For things like real estate or stock certificates, you’ll have to re-title them. The new owner is usually listed as “[Trustee’s Name] as Trustee for [Trust Fund’s Name],” accompanied by the date. An example of this would be, “John Doe as Trustee for the Richard Roe Education Fund, February 2019.”
If you’re going to fund a trust fund with cash, you’ll need to open a bank or brokerage account first. Once you have opened the account and transferred cash in, the trust account is essentially a brokerage account. This means you can use the cash in the account to buy and sell assets according to the limitations of the rules you’ve laid out.
Set up the Trust Accounting and Administration Records
After everything else has been done, one final step remains. You’ll need to keep detailed records, including accounting records, of all the trust fund’s activities. This is very important, in case someone files a lawsuit or someone notices a discrepancy.
While you may want to take care of these responsibilities yourself, at some point you will need to turn them over to someone else. You can separate these tasks and have different people or institutions handle them, or you can look for a financial institution that offers all-in-one management packages. These combine the administration and accounting duties and may include other services, such as investment management.
Get Started Investing with First Alliance
A trust fund is just one of several ways you can make your assets work for you. To find out more about ways to save, invest and donate your money, contact Member Services at First Alliance Credit Union. Our expert team of advisors will be happy to discuss the investment options at your disposal and help you select the ones that are right for you.