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Setting Up a Trust Fund

Estate Planning Personal Finances Kids & Money

Popular culture has created an association between trust funds and the wealthy. It’s a gift rich parents bestow on their kids, or worse, a way for the super-rich to hide assets from the tax collector. There’s a nugget of truth in both stereotypes; you can use a trust fund to provide money for young people. You can also avoid certain tax liability through setting up a trust. However, the financial tool isn’t just for the rich, because even those of more modest means can take advantage of the benefits of a trust.

With the trend today toward DIY finance, some may try to set up a trust themselves. However, it would be wise to consult with an experienced estate attorney and your financial planner before diving into the process. Your planner can help with the “why,” “what,” and “how much” questions, while your attorney will help make sure the document is legally enforceable.

If you wish to leave money to your children or grandchildren, and control how that money is used, a trust may be the right option for you.

How a Trust Fund Works

A trust fund is a special type of legal entity that holds assets to be used to benefit another person, group, or organization. Trust funds are popular because they help you control when and how your heirs can access assets that you have set aside for them. The most straightforward way to use a trust is to ensure that your heirs have timely access to your wealth. There are also some significant tax advantages that can be achieved when using trust funds as well as creditor protections. 

Why Create a Trust Fund

There are a few good reasons for setting up a trust as opposed to relying on a will. You will retain control of a revocable trust while you are alive. You can alter it to meet changing circumstances. You can also combine purposes -- for example, you can set up an educational trust that can only be used to meet college expenses for the kids, and you can also direct the trust to give them some spending money upon your death. You can use a trust to help your family avoid inheritance taxes in several ways too however these methods involve using irrevocable trusts and are not as flexible.

Seek Advice From the Pros

There is no set way to fund your trust, only the one that works best for you and your family. You may have concerns about losing control of certain assets, like stocks in a volatile market, so funding a trust with those assets might give you some concern. These are the kinds of issues you will work out when discussing your estate plan with a financial planner. Gather your financial information and give some thought to the “why” question. Together, you’ll work out the rest.

You will incur some expenses setting up your trust, especially if you seek help from professionals. However, they may save you and your family money over time. DIY websites make setting up a trust seem easy; however, you can reduce your risk of making a mistake by seeking quality advice from an experienced professional at the start.

Brian Plain and Gradient Advisors, LLC do not provide tax and/or legal advice, but will work with your attorney or independent tax or legal advisor. In the event that you do not have your own attorney or tax professional we will partner with local CPA firms to provide tax services.