Instructions for Setting Up a Trust Fund

by Andrea Ruiz ; Updated July 27, 2017

Items you will need

  • Legal professional who specializes in wills and trusts
  • Financial adviser

A trust fund is an investment fund that the law considers a separate entity from its investors. It is a legal avenue for people who want to set aside their investments for the benefit of their heirs, a business or an organization. The recipients of income from the trust fund are called beneficiaries, and the person or persons investing in the fund is called the grantor or donor. The grantor designates a third party, either an individual, several individuals or a more-impersonal corporation, to manage the income that the investments generate. This managerial third party, called the trustee, is responsible for distributing the income earned from the trust to the beneficiaries. Setting up a trust fund involves designating individuals or companies for all of these roles, as well as several other important legal steps and personal decisions.

Step 1

Set up an appointment with a financial adviser who can review your finances and investment capacity over the short and long term. Tell the adviser that you plan to set up a trust fund for your heirs or for an organization or company. The financial adviser will help you determine at what level you can invest in the fund. He will also help you choose what types of investments (stocks, bonds, money market accounts and cash) are best for your trust fund's growth and investment goals.

Step 2

Make an appointment with a legal professional who specializes in setting up a trust fund. She will help you fill out all the necessary paperwork involved in establishing a trust entity. She will also help you designate the beneficiaries and the trustees, as well as assist you in choosing the terms of the trust fund's payouts.

Step 3

Select a beneficiary. This is the party that will receive the income from your trust fund investments. You may designate one individual, several individuals, a non-profit organization or a for-profit corporation as the beneficiary. Many parents set up trust funds for their young children in lieu of simply leaving their assets to their children as a lump inheritance. Because a trust fund requires a presumably impartial third-party manager, or trustee, setting up a trust fund for young children is a good way to leave your assets to individuals who haven't developed the necessary financial management skills to handle the income in responsible ways.

Step 4

Designate a trustee for your trust fund. Just as with your beneficiary, this can be one individual, several individuals or a corporation, each with its own set of advantages and disadvantages. An individual trustee may have a personal relationship with you and with your beneficiaries, granting you peace of mind that your assets will be fairly distributed in your absence. But there may be complications if the individual dies, moves away, or improperly uses the income from your trust fund investments. A corporation may manage your trust fund on behalf of your beneficiary more impartially, but managing your assets properly may require a personal knowledge of your family's situation, which a corporate entity lacks. The trustee typically receives a small percentage of the investment income generated by the trust fund in exchange for his trustee services.

Step 5

Set up a regular investment schedule for your trust fund. Your financial adviser will help you complete the process of setting up the terms, amounts and targets for your investment funds. A fund manager may be able to divert your investment dollars to the highest growth sources. Set up an automatic investment schedule through your preferred financial institution, or invest annually in one lump sum.

Step 6

Determine the avenues and schedules through which your beneficiaries will receive income from your trust fund. Grantors commonly set up an income schedule, so that beneficiaries receive income from the trust fund as regular monthly or lump sum yearly payments. You must also determine the age at which your beneficiaries will begin receiving income from the trust fund. Most grantors of trust funds for minors set up the trust fund to wait until the beneficiary is at least a legal adult. Because part of the purpose of a trust fund is to manage income for the beneficiary via a third party, still other trust fund terms wait for the beneficiaries to reach a certain age of maturity, such as 21 or 25. Consult with your legal professional and financial adviser to decide what is the best option for your unique circumstances.

About the Author

Andrea Ruiz has written professionally for blogs, online entertainment magazines and television network websites for more than a decade. Ruiz has also been a web and social media developer, Internet business consultant and computer programmer since 1999, and worked for four years as a professional community manager. Ruiz holds a Bachelor of Arts from University of Massachusetts, Boston.

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