How to Create a Trust Fund

To start a trust fund, you decide what the trust is for and who it will benefit, work with an estate planning attorney to create the trust document, get a tax ID number for the trust if it needs one, open a trust account, and then move your assets into the trust.

You don’t need to be a millionaire to set one up, either. 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 make sure that money is used the way you intended. Here’s a closer look at each step.

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.

Get a Tax ID Number for the Trust

Once the documents have been created and you’ve signed them, the next step is getting a tax ID number for the trust, if it needs one. Most trusts need their own Employer Identification Number (EIN) from the IRS so they can file tax returns and open accounts at credit unions, banks, and brokerage firms. Certain revocable trusts are an exception, since they can often use your Social Security number while you’re alive, so ask your attorney which applies to yours.

You can apply for an EIN for free on the IRS website, or fill out Form SS-4 and mail or fax it in. Your attorney may also handle this for you, though they’ll likely charge for it.

How to Open a Trust Account at a Bank or Credit Union

If you plan to put cash into your trust, or want a place to hold money the trust receives, you’ll need to open a trust account. This is a checking, savings, or investment account owned by the trust and managed by the trustee. Most banks and credit unions will ask for:

• A copy of the trust document or a certification of trust: This is a shorter summary that confirms the trust exists and names the trustee.
• The trust’s tax ID number: This is the trust’s EIN, or the grantor’s Social Security number for certain revocable trusts.
• Photo ID for each trustee: Everyone who will manage the account usually needs to be there or verify their identity.
• An opening deposit: The amount depends on the type of account you open.

Requirements vary by financial institution, so call ahead or check online before you go. At First Alliance Credit Union, you can start opening a trust account online, and our team can walk you through what you’ll need.

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.

Open a Trust Account Online Today!