How to Start a Trust Fund

by David Carnes

    Trusts are versatile legal instruments that require you to vest the management of the trust's assets to a trustee, who then distributes assets to your beneficiaries. Because a trustee manages the fund, the trust can continue to exist even after you die. In most cases, establishing a trust fund is not a particularly complex undertaking.

    Parties

    The creation of a trust requires at least three parties -- the trustmaker (also called a grantor or a settlor), a trustee and at least one beneficiary. The trustmaker is the person who founds the trust and contributes its assets. You may appoint either an individual or a company as trustee, and you may appoint an alternate trustee. You may also appoint multiple beneficiaries and alternate beneficiaries.

    The Declaration of Trust

    If you intend the trust to take effect while you are still alive, you can create a living trust by signing a declaration of trust. Your declaration of trust must name all parties to the trust, and it should provide the trustee with specific instructions on how to distribute assets. The declaration of trust should state whether the trust is revocable or irrevocable; otherwise state law will determine its status. This is important, because an irrevocable trust generally cannot be modified or revoked without a court order. Finally, you must sign the declaration of trust and provide a copy to the trustee.

    Trust Assets

    The assets of a living trust are not subject to probate after you die -- your trustee can continue distributing trust assets under the terms of the declaration of trust without interference from a probate court. If you create an irrevocable trust, you can even protect trust assets from your creditors. If you create an irrevocable trust, however, it is important to transfer the title to all titled trust assets to the trustee. For example, bank accounts, real estate and automobiles should all be re-titled. If possible under state law, the title should be stated in the form of "John Doe, Trustee of the XYZ Trust Fund."

    Special Case: The Testamentary Trust

    A testamentary trust takes effect only after you die. Consequently, a testamentary trust is always irrevocable. You create a testamentary trust by inserting the terms that would otherwise appear in a declaration of trust into your last will and testament. Because the trust is created under your will, trust assets will fall under the jurisdiction of the probate court until the close of probate.

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    About the Author

    David Carnes has been a full-time writer since 1998 and has published two full-length novels. He spends much of his time in various Asian countries and is fluent in Mandarin Chinese. He earned a Juris Doctorate from the University of Kentucky College of Law.

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