How To Set Up a Trust Fund

Although many people view trust funds as a tool reserved for those with many assets, creating a trust fund can be an important part of planning your estate, regardless of how much you own.

Trust funds are meant to set aside and protect your assets for the future — whether that’s before or after you’re gone.

We’re here to help break down what it takes to set up a trust fund, so you can feel more confident doing so.

The different types of trusts

There are several common types of trust, and the one you’ll choose will depend on your specific situation and needs.

• Revocable trust: A flexible type of trust that allows you to make changes, like updating beneficiaries or adding/removing assets, at any time during your life
• Irrevocable trust: A trust that cannot be changed or canceled after its creation. Once you establish an irrevocable trust and place your assets in it, you relinquish control to the trustee you’ve chosen.
• Living trust: A trust you set up during your lifetime that designates a trustee to administer your assets to your beneficiary/beneficiaries after your death. A living trust can be revocable or irrevocable.
• Testamentary trust: A trust that comes into existence only after you’ve passed away. The terms of the trust are typically included in your will. A testamentary trust is irrevocable by definition.

There are also trusts for specific use cases, like special needs trusts for people with disabilities to preserve their assets while still qualifying for government benefits, and spendthrift trusts for beneficiaries who may be likely to spend a lump-sum inheritance irresponsibly.

5 steps to create a trust fund

When setting up your trust, you’ll first have to decide whether you’d like to create it on your own or seek the help of a financial advisor or estate planning attorney.

While it’s possible to open a trust fund on your own, one of the best ways to ensure you’re following all of your state’s rules and regulations is to use a lawyer — one who knows the ins and outs of the trust fund creation process.

Step 1: Designate your trustee

Your trustee is the person responsible for managing and carrying out your trust fund after it’s been created. It’s important to designate someone reliable who will carry out your wishes as outlined.

Your trustee can be anyone, whether that’s a family member, friend, attorney, financial advisor, or someone else of your choosing. Whomever you pick, make sure you feel confident they’ll act in your — and your beneficiaries' — best interests.

You can also designate yourself as a trustee if you have a revocable living trusts. You just want to make sure you’re also designating a successor trustee to take over after you pass away.¹

Step 2: Choose your beneficiary(ies)

Your beneficiaries are the people who will receive the assets you put in your trust. People often choose to name more than one beneficiary, with each receiving specific assets.

The most commonly named beneficiaries are spouses, children, and other close family members. However, like with your trustee, you can name anyone as a beneficiary. This includes businesses, charities, friends, and family.

Step 3: Decide on how your trust will be administered

Now that you have your trustee and beneficiaries for your trust, think about how you want the assets and the income from the assets distributed. For instance, a beneficiary can receive income from the trust while the trust is in place, and then the assets and any income when the trust is dissolved. In the case of a married couple, typically, income from a trust goes to the surviving spouse and then assets in the trust goes to the children when that spouse passes.²

Step 4: Write up, sign, and notarize your trust document

The easiest way to write up your trust fund document is to utilize a lawyer. This will ensure you include all necessary documentation and that your trust will be 100% legal. If you choose not to go through a lawyer, there are a number of forms available online, at your local courthouse, and through your local government’s website to help you set up a trust fund.

When filling out your trust fund documents, you’ll want to include:

• Who your trustee and beneficiaries are
• Which assets you’d like to include in the trust. These can include bank accounts, real estate, life insurance policies, stocks, bonds, furniture, cars, jewelry, art, etc. The assets that are placed in a trust is referred to as the “principal,” and any earnings on that principal is considered “income.”³
• How you’d like those assets handled and distributed.
• Any other terms and conditions you have

Once you’re happy with the contents of your trust fund document, it’s time to sign it. Most trusts require you to have two witnesses present at the time of signing. Additionally, some states require your trust to be notarized. Even if your state doesn’t require notarization, it’s an additional way to ensure the validity of your trust fund, should it be challenged in the future.

Step 5: Open and fund your trust account

After your trust documents have been created and signed, you’ll likely be required to show them to a bank or financial institution prior to opening an account.

Finally, you’ll fund your account. This can mean signing over property deeds or vehicle titles, depositing money, and moving over any stocks, bonds or other items.

What happens after you set up your trust fund?

Once everything you’d like to include has become part of your trust account, you are no longer in control of these assets (unless you designated yourself as the trustee or it’s a revocable trust and you want to make some sort of change).

Instead, your trustee is responsible for them until the time comes to release them. The items can all be released at one time or each doled out at a specific time, depending on what you outlined in your trust documents.

Why create a trust?

A trust fund is an excellent way to ensure your assets are handled according to your wishes when you pass away. It allows you to control who receives any money, personal items, or real estate, as well as when and how those assets are distributed.

Trust funds keep your most valuable assets safe until the time comes to share them. They also help protect your assets from having to go through the probate process after your death, which can be time-consuming and stressful for your loved ones.

How trust funds work

When you set up a trust and put your assets into it, you are the grantor. As the grantor, you’re also responsible for naming a trustee for the trust, the person or organization who is responsible for holding and eventually administering the assets in the trust according to the grantor’s wishes. The beneficiary is the eventual recipient and owner of the assets in the trust.

Setting up a trust fund can be a critical part of estate planning. You can rest easy knowing that your estate won’t have to go through probate and your assets will go into the right hands, just the way you intend.