How to Set Up a Trust Fund For a Child

There are benefits to setting up a trust fund for a child rather than leaving them money in a regular inheritance. You might set up a trust for your child or grandchild for example. Trusts can make it possible for the beneficiaries to pay less money in taxes on the money they receive. A trust will allow you to select a trustee who can handle the money for the child until they are an adult. This will help you to ensure that your child’s assets in the trust are safe and that money is spent wisely.

You can set up a living trust that is available to your child while you are still alive. You can put money and assets in the trust that can be used throughout their childhood. On the other hand, you can set up a trust that will be available to your beneficiary upon your death.

There are two very common trusts that qualify for gift tax exemptions. These are a good option if you do not want to see your beneficiary socked with gift taxes for the money and assets in their trust. The Section 2503b trust is one in which the child for whom you established the trust will receive income from the trust each year until they are no longer a minor. For a section 2503 trust money can be accessed for a minor through the trustee anytime until they are 21. They are then usually able to access the trust on their own at that time. A trustee is no longer needed. They can continue keeping the money and assets in a trust or they can use the trust in any other way they see fit at that time.

When considering how to set up a trust fund for a child, you will need to consider how much money and assets you want to place in the trust. Keep in mind that you cannot access money from this trust. You will no longer have those assets or the money once you set up the trust. Determine how you want the trust to work. Will it be a living trust where the beneficiaries benefit from the trust while you are still alive? Or will this trust be available to the child after you pass away?

Write a list of any potential trustees. Determine what decisions the trustee will be able to make and any decisions for which they will not have control. Think of anyone who you would trust to handle the money and assets that will be placed in the fund. Do not consider anyone for whom you have any hesitations. If you are a grandparent setting up a trust for a grandchild, you might want a parent as a trustee. You can also select an attorney or even a trusted financial advisor.

Write down any questions you have about the types of trusts available to you and exactly how they will work. If you have no idea where to start when considering how to set up a trust for a child, contact a financial adviser for some basic information before you begin the process of setting up a trust.

Contact a banking representative, lawyer or a financial adviser to help you prepare the legal paperwork for the trust. You can ask them any questions pertaining to the steps needed to establish a legal trust. They can answer any questions you have as to how the trust will work and any potential stipulations you can place on the trust. Make a final determination as to who you will have as the trustee. This must be someone you trust who will handle the trust in a way that is in the best interests of the child at all times.

Sign any necessary paperwork to validate the trust. Follow all instructions provided to you as to the process for setting up a trust, listing your beneficiaries and naming a trustee.


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