Steps to Setting Up a Trust Fund

Establishing a Trust Fund Isn't as Difficult As You Might Think

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Now that you've had your question, "What is a trust fund?" answered, let's look at the process of establishing one. This general overview will give you an idea of what the broad process might look like

1. Collect the key details.

Why are you going to the trouble of creating a new legal arrangement to restrict a specific collection of property? What it is you are attempting to achieve? 

Before you open a trust, you will need to answer the following questions:

  • Who is the grantor (or the person transferring assets to the trust?
  • What are the assets that will be placed in the the trust fund? Will is be cash, stocksbondsmutual fundsreal estate, or other property?
  • Who are the beneficiaries?
  • Who will serve as trustee?
  • How will the assets be managed, invested, or treated, including the types, level, and timing of distributions?
  • Who will manage the assets?
  • How long will the trust last before terminating and under what conditions it will cease to operate?
  • Is the trust revocable (can be changed) or irrevocable (cannot be changed)?

    2. Go to a reputable estate planning attorney

    The next step in setting up a trust is going to an attorney in the state in which you want the trust fund domiciled. This is an important decision because the state laws used to craft the trust will have a profound influence on the way it is overseen by the courts?

     Though trust law differs from state to state, it has standardized to some degree over the years. Nevertheless, make sure you're choosing intelligently from the outset by talking it over with your qualified advisors.  

    Have the attorney create a declaration of trust and/or the full trust instrument, which is the legal document that establishes the family trust fund and that codifies all of the things we discussed in the previous step. It can be simple and short or long and complex depending on the size of the trust, the number of beneficiaries, and the purpose it is attempting to fulfill. 

    When everything is done and to your liking, sign the paperwork creating the trust. Make your trust declaration, put the trust instrument into effect, and move on to the next step.

    3. Register the Trust with the IRS

    Usually, the trust fund will need to request its own taxpayer identification number, or TIN. Just as a business needs an Employer Identification Number (EIN) and a person needs a Social Security Number (SSN), the TIN allows the trust to file its own stand-alone tax returns, open financial accounts at banksbrokerage firms, as well as other institutions, and a variety of other things necessary to conducting day-to-day business.

    To receive your trust's TIN, you can complete the process online at the IRS website or you can download Form SS-4, fill it out, and submit it by mail.

    4. Transfer the Property You Are Gifting to the Trust Fund

    The next step in setting up your trust fund is retitling the property you want to transfer to it. This might be done as "[Insert Name of Trustee] as Trustee for [Insert Name of the Family Trust Fund] on [Insert Date]". For example, imagine you had 10,000 shares of Exxon Mobil worth $830,000 you wanted to put in trust for your children. You set up the family trust and call it "The John Smith Energy Trust". You name your sister, Ada Smith, as trustee. You go get the stock certificates out of the vault and re-register them with the transfer agent, changing the title listed in the corporations registration records from your name to: "Ada Smith as Trustee for The John Smith Energy Trust, July 30th, 2019" or something comparable.

    If you are going to transfer real estate to the trust, you'd go down to the recorder of deeds and sign over the trust the same way: "Ada Smith as Trustee for The John Smith Energy Trust, July 30th, 2019".

    If the trust is going to be funded with cash, you'll need to open the bank or brokerage account to which you plan on making the deposit. Let's say you went to Charles Schwab, a popular discount broker. Once you do that, the trust account behaves, for all intents and purposes, as if it were a brokerage account in the sense you can buy and sell assets according to whatever rules were laid out. 

    5. Take Care of the Trust Administration and Accounting Records

    Finally, the last step in setting up your trust is administering it in accordance with the trust instrument by keeping detailed records, including accounting records, so if there is ever a lawsuit or discrepancy, the paperwork is in order. At some point in your lifetime, or at the time of your death, you'll need to turn over these responsibilities to someone else.

    While you can separate the tasks into specific functions and source them with different people or institutions, many financial service firms offer all-in-one fee packages, combining corporate trustee services with administration, accounting, and investment management.