In my last blog entitled “Why I Opened A Trust Fund For My Son” I wrote about how I opened a trust fund for my 16 month old, Justice. I wanted to elaborate on it and talk about how I managed to do so. Trust funds allow people to distribute their property and assets to beneficiaries without having to involve the courts in the probate process and without having to pay some estate taxes. You can set up a trust fund with the assistance of a trust and estates attorney, or you can draw up the documents yourself. This type of financial planning is for the middle class and wealthy. So the first step in opening a trust fund is simple.
- Be generating at least $40,500 and $122,000 a year. This not the average salary for an average American. Create different sources of income to be able to accumulate such.
- Understand what a trust fund is. There are numerous types of trust funds, but the most common are revocable and irrevocable trusts. These trusts are estate planning tools used to hold, gather or distribute money to people or organizations. An estate is all of the money and property owned by a particular person, especially at death. Inside of this fund you can put assets, money, stock, real estate, business etc.
- There are 3 parties associated with a trust fund. A grantor – who sets up the trust. A trustee – who manages the trust and a beneficiary – the person who receives whatever is inside of the trust. Decide who do you want placed in these three positions.
- Next you need to decide whether to hire an estate planning attorney or you want to draw up the documents yourself. Doing it yourself requires that you understand the laws of your state. Laws have a heavy influence on how the trust sculpted.
- Once the trust is started you have to register it with the IRS. The trust fund entity will need to request its own taxpayer identification number (TIN). Just as a business needs an Employer Identification Number (EIN) and a person needs a Social Security Number (SSN). Remember that a trust fund stands alone. Just like a business or a human being.
- Transfer assets. Whether it’s stock shares, businesses, real estate or even cash you must change the ownership titles. For example: For example, my son’s trust is called Happyness Seeds. Imagine I had 10,000 shares of Uber worth $700,000 that I wanted to put in trust for my son. I would set up the family trust and call it “Happyness Seeds Transportation Trust.” Then decide to name my son’s God Father Archangel Michael to be a trustee. I would have to re-register my stock certificates with the transfer agent, changing the ownership title listed in Uber’s corporate registration records from my name to: “Archangel Michael as Trustee for Happyness Seeds Transportation Trust” , September 30th, 2019.
- Keep DETAILED records. An important part of having a trust is administering it in accordance with the trust’s guidelines. You must also keep accounting records. In case of a lawsuit the paperwork will be in place to clear up any discrepancies.
A trust gives you greater protection than a will against legal action from anyone who is unhappy with the distribution of assets and decides to challenge it. They also offer flexibility in how assets are distributed. You can pay for education or donate to charities with a trust. A trust can provide a way to avoid or reduce estate taxes because assets and property placed into a trust are not subject to these taxes. Trusts can help you manage your affairs if you become unable to do so. Many people set up trusts to prepare for the possibility that they may become disabled or ill before their death, and thus unable to manage their assets properly. Trusts offer greater privacy than wills because trusts don’t go through probate, so there usually aren’t any public records of them. This means your assets and whom you leave them to are kept private.