A trust fund allows a grantor to set aside money, property, or other assets for the benefit of another person or organization, known as the beneficiary. A trustee manages the items placed in the ownership of the trust. Depending on the type of arrangement you choose, the terms of the trust can be enacted immediately or upon your passing. Below are three tips to assist you in setting up a trust fund.

How to Set Up a Trust Fund

1. Explore the Available Types

Trusts aren't a one-size-fits-all prospect. Different types are better suited for certain purposes. The most common is a revocable living trust (technically an “inter vivos trust”), which takes effect upon signing. The trustee takes control of the assets transferred to the trust and holds or distributes assets per its terms. Often, the initial beneficiary is the grantor himself or herself. After a triggering event, usually the death of the grantor, the remaining assets are distributed (outright or into secondary trusts) to the remainder beneficiaries. This option is popular because the assets transfer ownership without the interference of the lengthy probate process.

The terms of an irrevocable living trust, unlike a revocable one, cannot be changed by the grantor, but there are certain benefits in tax law and elder law to this restriction. These are just two types of trust funds; explore all the available options for your unique circumstances.

2.Register With the IRS

Certain trusts need to be registered with the IRS and given a taxpayer identification number (called an Employer Identification Number (EIN) or a Taxpayer Identification Number (TIN)). Trusts that the tax law treats as still being owned by the grantor (called “grantor trusts”) can use the grantor’s social security number (SSN).

Once the trust has its EIN or knows which SSN to use, the trustee can open accounts in the trust’s name, such as checking, savings, and brokerage accounts. A trust that is treated as a separate taxpayer (i.e. is not treated as still owned by the grantor) must pay taxes on any income generated by its funds. As a quirk from history, non-grantor trusts —those trusts that are not deemed to be owned by the grantor — have severely compressed tax brackets, hitting the top percentage as surprisingly early amounts of income. Be sure to discuss your trust’s tax status with your estate planning attorney and accountant.

3. Choose a Responsible Trustee

Any legal adult who you think can handle the responsibilities of trust management can be appointed a trustee. Most people usually name someone who can be trusted to do the right thing or is neutral and has no stake, financial or otherwise, in how the assets are handled or distributed.

For extremely large trusts or where no suitable individual can be found, the trustee is often a professional trustee company, a bank, or an attorney. No matter who is chosen, it should be an individual who understands your values and how you want the assets managed.

A lawyer will help you navigate every stage of trust fund planning and preparation. Trailhead Estate Planning is here for you. Serving clients throughout the Signal Mountain, TN, region, Attorney Peter Harrison offers representation and guidance in all aspects of estate planning, including trusts, wills, and guardianship. Call (423) 228-7029 or visit his office's website to schedule a consultation.