How to Set Up a Family Trust Fund | Keller Financial Planning

A trust fund provides a legal vehicle to transfer money or property to beneficiaries. A trust fund manager, called a fiduciary, distributes the assets according to the terms of the trust. A family trust fund offers tax advantages and protects beneficiaries from misusing funds due to immaturity or poor money management skills. A living trust fund provides benefits to you or your designated beneficiaries during your lifetime while a testamentary trust becomes active at the time of your death.

Step 1

Decide if you need a family trust fund. Common reasons include the desire to protect family members who through age, personal habits or capability cannot effectively manage money. Lessening estate taxes, gift taxes or speeding the process of asset distribution provide other reasons to establish a family trust fund.

Step 2

Make a list of assets you want included in the family trust fund. Remember, you need to transfer or change title assets, such as property, to the trust through appropriate legal processes. If you create a living trust, you may add assets periodically based on acquisitions.

Step 3

Decide if you want your family trust fund to be revocable or irrevocable. A living trust fund can remain revocable. This means that you can alter the trust funds terms or distribution. Most living trusts become irrevocable at the time of your death.

Step 4

Decide how you want the assets distributed, including options such as only distributing earnings or distributing a fixed amount monthly or annually. You may also specify restrictions on how the distribution can be spent, such as using the assets only to support education.

Step 5

Make a list of any potential trustees. Choose someone whose money management skills and integrity you trust completely. For a testamentary family trust fund, you may want to choose a bank or financial institution that remains objective in distribution and handles tax filing requirements. The annual fee for trust servicing is usually around 1 percent to 1.25 percent of the assets in the trust, according to Joseph Lipscomb, trust relationship officer at Navy Federal Financial Group in Virginia Beach, Virginia.

Step 6

Contact the proposed trustee to gain their permission and acceptance of the role in managing your trust. Create a draft of the terms of your family trust fund. See Resources for examples and requirements for your state. After you create the draft, work with your attorney to finalize the family trust fund document.

Step 7

Make copies of your family trust fund documents for the trustee, you and your lawyer. Ask your lawyer if your state requires filing of trust documents and comply with those requirements.