Trust funds can serve a variety of important purposes in estate planning. A꧙ major one is ensuring that your assets are properly managed and distributed after you die. This can be especially important 𓃲if your children are minors or have special needs. 

This article explains the pros and cons of different types of trusts and how to establish one that best suits your purꦅposes.

Understanding Trust Funds

A trust is a legal entity that you can e🐻stablish to hold and manage assets after your death for the benefit of another person or persons, such as your children. 

In legal parlance, you are referred to as the grantor of the trust, your heirs are the trust’s beneficiaries, and another person or financial institution of your choosing takes on the role of trustee.

The trustee is legally bound to follow your wishes and distribute the🧸 assets according to your instructions. That might mean delaying distributions until a child has reached a certain age or spreading them out over several years so the child can’t spend them all at once.

Types of Trusts

Trusts can take♛ several forms, suitable for different purposes. One basic distinction is whether the trust is irrevocable or revocable. Each of those has advantages and disadvantages. 

Irrevocable Trusts

Just like it sounds, an 澳洲幸运5官方开奖结果体彩网:irrevocable trust is one that, according to the Internal Revenue Service, generally “cannot be modified, amended, or revoked.” The advantage of an irrevocable trust is that it can protect the assets from creditors in the event of a lawsuit and may shield them from estate taxes. A major downside is that once the trust has been established, the grantoﷺr (i.e., you) has little or no contr♉ol over the assets. 

Revocable Trusts

A 澳洲幸运5官方开奖结果体彩网:revocable trust, by contrast, allows the grantor to retain control over the assets during their lifetime. Typically, you name yourself as trustee, while also naming a successor trustee to take over after your death or should you become incapacitated. 

Unlike an irrevocable trust, revocable ones won’t reduce estate taxes, although they do allow for the assets in the trust to bypass the state 澳洲幸运5官方开奖结果体彩网:probate process, which can allow the beneficiaries to receive their inheritances more quickly. Revocable trusts may also be referred to as 澳洲幸运5官方开奖结果体彩网:living trusts or inter vivos trusts. 

You can use either of these types of trusts to create trust funds for your chil🌸dren by specifying those terms in the trust agreement. You could, for example, direct your trustee to disperse the money over a set number of years rather than immediately. Or, you could specify that it can only be used for a certain purpose, such as education.

Benefits of Trust Funds for Children

While you can, if you wish, leave your assets to your children through your will, setting up a trust fund could have 🥂several practical advantages. Those include:

Long-Term Financial Security

With a trust fund you can arrange to have assets distributed to your children according to whatever tim𝓰etable you think makes the most sense. If you’re worried that an heir might be tempted to spend their inheritance all at once, you can avoid that by parceling it over several years. 

Asset Protection

Putting your money and other valuable assets into an irrevocable trust can protect them from creditors in case of a lawsuit or other threat. This can benefit you as well as your heirs. While a revocable trust doesn’t provide that protection during your lifetime, it will become an irrevocable trust upon your death.

Controlled Disbursement

A🐼s mentioned, a trust allows you to specify how and when your assets will be disbursed up𝄹on your death. In addition, you can indicate how much money your beneficiaries will receive with each disbursement, such as a particular dollar figure or a certain percentage of the remaining balance.

Ensuring Intended Use

Also as mentioned earlier, you have the option of specifying how the money in the trust fund is to be used. For example, you might restrict ♛it to educational expenses, medical bills, or other serious purposes, rather than allow your heirs to spend it however they wish. 

How To Set Up a Trust Fund

Setting up a trust fund is not a do-it-yourself project unless you happen🧔 to be an estate attorney yourself. You will want to hire a lawyer with experience i♉n such matters, especially because the rules vary from state to state.

However, und✅erstanding the key steps in setting up a trust fund will help the process run more smoothly.

Choosing Beneficiaries

You will need to indicate who you want to inherit the assets in your trust. That might not only be your children but, if you wish, grandchildren, including those who🌱 have yet to be born.

Appointing a Trustee

This is among the most critical steps in setting up a trust fund and is worth serious consideration. A trustee is a person who holds and administers properties or assets for the benefit of a third party. The ideal person will be someone you know to be trustworthy and w𓆉ho, ideally, has some knowledge of money matters. 

It’s a good idea to appoint a trustee who will likely outlive you and name successor trustees just in case they don’t. Of course, you will want to consult ❀༺the person beforehand to ensure they are willing to take on the responsibility. 

Guardianship Considerations

If you have minor children, you should name a guardian for them in your will. You can appoint the same person to be the trustee for your trust or you can choose someone else for that role. 

The Bottom Line

Trusts can be a useful part🍸 of your estate plan, especially if you have minor children you need to provide for if you die. A knowledgꦗeable attorney can help you choose the type of trust that’s most appropriate for your circumstances. 

Bear in mind that a trust agreement isn’t a su🍎bstitute for a will, but can act in concert with one to ensure your wishes are carried out and your children are well taken care of—just in case.