How to set up a Trust for a child?
Trust is a crucial instrument in estate and legacy planning. However, people associate trust with the affluent class. Also, people believe trust is a vehicle for privacy. But trust is a versatile tool that helps to manage the assets and directs them into the right hands upon the owner’s death.
Setting up a living trust secures your estate with a safety net from the intrusion of third parties such as creditors. This blog explains the significance of trust, the types of trust, how a trust works, and guides how to open a trust.
What is Trust?
A trust is a fiduciary relationship in which the trustor gives the trustee the ownership of a property or title for the benefit of the beneficiary. Moreover, a trust is a legal entity with distinct rights similar to a person or an organization. Generally, an individual creates a trust to provide legal protection to the estate. Furthermore, it also helps to avoid the complex probate process and reduce the size of the taxable estate.
Besides managing the assets, you can set up a trust for your minor children or an older child with special needs in your absence. Setting up a trust fund can be a wonderful thing you can do as parents. However, setting up a trust in the correct way is essential.
How do Trusts for children work?
Regardless of the type of trust, the three entities involved in a living trust are the trustor, trustee, and beneficiary. The “trustor” is the trust grantor who transfers the property’s ownership to a “trustee.”
The trustee manages the assets following the grantor’s wishes as stated in the trust’s agreement for the beneficiary’s benefit. A “trust fund” is the property or the asset transferred from the grantor to the trustee for a specific purpose. A trust fund is the core of trust.
The beneficiary is the entity that profits from the trust fund. Moreover, children are the beneficiaries of a majority of trust. The beneficiaries receive the fund during the grantor’s lifetime or after the grantor’s death. Furthermore, the distribution of the funds might be on a particular condition – the attainment of a certain age, for a specific purpose, or an event.
The grantor might limit the usage of funds to a specific purpose or leave it to the beneficiaries’ choice. Besides, the primary benefit of setting up a family trust is that it protects the asset from a legal claim.
What are the 3 types of Trust?
- Revocable Trust
- Irrevocable Trust
- Testamentary Trust
- Special needs trust
- Family trust for real estate
What type of Trust is best for the kids?
|Value of assets||Trust fund|
|Less than $2,50,000||One-shot fund|
|$2,50,000 – $1,000,000||Two-tier approach|
|$1,000,000- $3,000,000||Three-tier approach|
|Over $3,000,000||Lifetime or dynasty trust|
How to create Trust for a child?
- Mention the purpose of the trust.
- Why are you creating trust?
- Who will benefit from the trust?
- What do you accomplish after creating the trust?
- Choose the type of trust.
- Decide on the trust funds.
- Decide who will manage the trust.
- Legally open a trust account and create the trust documents.
- Transfer the assets into the trust.
Can you set up a Trust without an Attorney?
- Your estate is large and owes an estate tax.
- Your estate has conditions.
- You need clarification regarding the assets to include in the estate and will.
- One of the beneficiaries has special needs and is receiving government benefits.