Trust funds aren’t only reserved for the rich; they are excellent opportunities to create protection for minor children, disabled adult children, and other family members who may be incapacitated due to mental and physical challenges.
Setting up a trust fund for someone you care about is one of the best ways to ensure that they will benefit from your assets.
To set up a trust fund, you, as the grantor, place money or assets allocated for that trust into a fund that is managed by a trustee for your beneficiary according to comprehensive instructions given by you on how they should manage the trust. This guarantees that your assets will be distributed or invested according to your wishes.
Types of Trust Funds
Each type of trust fund brings different benefits to the grantor and beneficiary. Based on when they take effect, trust funds can be divided into living and testamentary funds: living trusts serve a wide variety of purposes, such as tax mitigation; testamentary funds take effect after you pass away and are typically used for inheritances.
Another way to classify trust funds is by whether they can be amended or revoked. If you opt for a revocable trust, you can change the terms of the trust or revoke it at any time. An irrevocable trust, on the other hand, cannot be changed or revoked, although some limited powers can be reserved to amend the named trustee, trust protector or certain aspects of administration of the trust.
Benefits of a Trust Fund for a Minor
Establishing a trust fund for your minor child or children is one of the safest ways to pass money to them, as you determine how and when the assets will be distributed. Overseen by your trustee, it can provide your child with financial guidance even after you are gone. It can also give you peace of mind that your child will have some sort of financial security well into adulthood.
One of the biggest advantages is that you control how the money will be used. For example, you can dictate that the money be used for educational expenses until your child graduates from high school or college. For even more control, you can also leave instructions that your child shall receive monetary rewards for positive behavior and even include requirements such as drug testing. You might also use the trust to preserve a residence in which you want your guardian to raise the minor children after your death, or to allow your children to continue to live in the residence until the youngest reaches a specific age or completes his or her undergraduate education.
With a trust fund, your child cannot lavishly or wastefully spend all the money; by receiving money in accordance with your instructions, they can build a brighter future for themselves and learn how to responsibly manage finances.
Benefits of a Trust Fund for a Person with Disabilities
Setting up a trust fund for your loved one with special needs is one of the smartest financial decisions you can make. Special needs trusts are created with the sole purpose of benefiting mentally- or physically-challenged individuals, taking into account their specific care, lifestyle, and other needs, and funding those needs for the future.
One of the most important advantages of establishing a special needs trust is that you can ensure that your beneficiary will continue receiving government benefits, which is often not possible with a will. Even if your disabled loved one doesn’t need government benefits at the moment, you don’t know what the future will bring, so it’s better to have all options available.
Another benefit of a special needs trust fund is that if your beneficiary is ever sued, the money in their fund cannot be used in the lawsuit. In other words, the funds from their trust can only be used for the intended purpose which you set forth in the trust instrument.
How to Set Up a Trust Fund
Depending on whether you are setting up a living or testamentary trust, you can select yourself as a trustee or need to appoint one. You may also be required to select a custodian.
The next step is to decide when and how your beneficiary will receive the assets, a process followed by preparation of trust documents. When all this is in place, with the guidance of an experienced attorney and your financial advisor, you can then determine the best time to place your assets (which can include money, stocks, savings bonds, investments, and more) into the trust fund for future access.
Consult with an Experienced Estate Attorney
Since trust funds are often complicated, it is strongly recommended that you consult with an estate attorney, like the lawyers at The Law Office of Patricia E. Tichenor, P.L.L.C. if you are living in Northern Virginia. Attorneys Patricia Tichenor and Camellia Safi are experienced in creating trust funds for minors and those with physical or mental challenges and can help provide advice, guide you through the process and prepare and review your documents. Contact us today.