How to Create a Trust Fund
Understand what a trust fund is., Learn the financial elements of a trust fund., Understand the difference between a trust and a will.
Step-by-Step Guide
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Step 1: Understand what a trust fund is.
A trust fund is a legal entity that holds property and assets and distributes them to beneficiaries when certain conditions have been met.
People choose to set up trust funds to avoid estate taxes and to avoid probate.
All trusts have important parties.
These are the grantor, the trustee, and the beneficiaries.Probate is a time-consuming and expensive process that occurs after a person’s death.
It includes verifying the validity of a will, inventorying and appraising property, paying debts and taxes, and distributing property.A grantor is the person who creates the trust.
The grantor establishes the nature of the trust, transfers initial assets to the newly established trust, and defines its rules.
The trustee is responsible for managing the trust and its assets.
The trustee can be the grantor, a trusted family member or friend or a corporate trustee such as the trust division of a bank.
If the grantor designates himself as the trustee, then he should also choose a successor trustee to serve as trustee in the case of his death or incapacitation.
The trustee must follow the rules of the trust and act in accordance with state law.Grantors can also name a successor trustee(s) if the initial trustee(s) fail to serve for any reason.
The beneficiaries receive the property in the trust.
The rules of the trust establish which property the beneficiaries receive, the circumstances that must be met, and the timing of the property distribution. -
Step 2: Learn the financial elements of a trust fund.
A trust fund can hold tangible assets such as cash, stocks, real estate, and intangible assets such as patents and copyrights.
The assets can grow while being held in the trust.
The trustee is responsible for managing investments and growth of the trust fund.The rules established by the grantor dictate which beneficiaries receive the income, profits, or capital gains and principal of the trust.The grantor of the fund has the power to establish rules and requirements in terms of how money will be distributed or invested.
The principal is the money or property that was initially given to the trust.
It is also called the corpus.Stocks and other investments earn interest and dividends.
This is referred to as income.Increases in value to the principal are the profits or capital gains., The most significant difference between a trust and a will is that a trust allows the property to be distributed to the beneficiaries without having to go through probate.
In addition, trusts are usually more private than wills.
A trust, however, cannot name guardians for children.
Also, a trust cannot designate how taxes and debt are to be handled.
Therefore, those who set up trusts also write wills. -
Step 3: Understand the difference between a trust and a will.
Detailed Guide
A trust fund is a legal entity that holds property and assets and distributes them to beneficiaries when certain conditions have been met.
People choose to set up trust funds to avoid estate taxes and to avoid probate.
All trusts have important parties.
These are the grantor, the trustee, and the beneficiaries.Probate is a time-consuming and expensive process that occurs after a person’s death.
It includes verifying the validity of a will, inventorying and appraising property, paying debts and taxes, and distributing property.A grantor is the person who creates the trust.
The grantor establishes the nature of the trust, transfers initial assets to the newly established trust, and defines its rules.
The trustee is responsible for managing the trust and its assets.
The trustee can be the grantor, a trusted family member or friend or a corporate trustee such as the trust division of a bank.
If the grantor designates himself as the trustee, then he should also choose a successor trustee to serve as trustee in the case of his death or incapacitation.
The trustee must follow the rules of the trust and act in accordance with state law.Grantors can also name a successor trustee(s) if the initial trustee(s) fail to serve for any reason.
The beneficiaries receive the property in the trust.
The rules of the trust establish which property the beneficiaries receive, the circumstances that must be met, and the timing of the property distribution.
A trust fund can hold tangible assets such as cash, stocks, real estate, and intangible assets such as patents and copyrights.
The assets can grow while being held in the trust.
The trustee is responsible for managing investments and growth of the trust fund.The rules established by the grantor dictate which beneficiaries receive the income, profits, or capital gains and principal of the trust.The grantor of the fund has the power to establish rules and requirements in terms of how money will be distributed or invested.
The principal is the money or property that was initially given to the trust.
It is also called the corpus.Stocks and other investments earn interest and dividends.
This is referred to as income.Increases in value to the principal are the profits or capital gains., The most significant difference between a trust and a will is that a trust allows the property to be distributed to the beneficiaries without having to go through probate.
In addition, trusts are usually more private than wills.
A trust, however, cannot name guardians for children.
Also, a trust cannot designate how taxes and debt are to be handled.
Therefore, those who set up trusts also write wills.
About the Author
Raymond Richardson
Enthusiastic about teaching lifestyle techniques through clear, step-by-step guides.
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