Personal Finance

9 min read

August 26, 2021

How to Set Up a Trust Fund

You might wonder what a trust fund is, and think that it’s only for the super-rich. However, it can actually benefit anyone and help you leave a legacy. Read on to learn more about how to set up a trust fund.

When you think of a trust fund, you may have preconceived notions about who they are for and how they work. You might think they are overly complex and reserved for only the ultra-wealthy. But that’s not necessarily true.

What is a Trust Fund?

A trust account, which is often referred to as a trust fund, is a specific type of account that distributes assets and obligations from one party to another. According to the Internal Revenue Service (IRS), “in general, a trust is a relationship in which one person holds title to property, subject to an obligation to keep or use the property for the benefit of another. A trust is formed under state law. You may wish to consult the law of the state in which the organization is organized.”

So if you’ve built up a modest to quite impressive net worth or have real estate holdings, you may want to protect your assets and pass them on to your family. Additionally, you could use a trust to benefit your favorite charity and leave a long-lasting legacy, putting your money to good use. 

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What is the Purpose of a Trust Fund?

The purpose of a trust fund is to be able to pass on assets, real estate, and more to your beneficiaries. A trustee is a person or legal entity for the trust fund which passes on assets to beneficiaries. Your beneficiaries could be your children, family, friends, or your favorite charity (cat rescue, anyone?). 

Going through a trust to pass down assets can help you avoid the hassle of going through probate, offer you more privacy, and you can set rules on how the funds should be used. Typically, if your affairs need to be settled in probate, information could be listed in public paperwork whereas your trustee may be able to handle that. If there aren’t any disputes, you may be able to keep your family info out of probate court. 

How Does a Trust Fund Work?

Trust funds tend to be a part of a larger estate plan that includes the passing down of assets to specific entities for specific reasons. Imagine you pass away without a will and your family has to fight over your assets. On top of that, imagine your money getting stuck in probate — a lengthy and costly legal process to verify your will or deal with your assets without one. Trust funds help to mitigate these issues by ensuring there is a clear-cut plan of how to use funds or transfer assets. 

The two most common types of trusts are a revocable trust (sometimes referred to as a living trust) and an irrevocable trust. Under a revocable trust, you can change the terms at any time you wish. Under an irrevocable trust, once the terms are set, the terms can’t be changed without the beneficiary’s input. 

When you set up a trust, it would be managed by a trustee. The trustee has control over how assets are managed and distributed, though it must be within the parameters set at the time of starting the trust. 

If you start a trust, you’re referred to as a grantor. You’d then choose a beneficiary and can set guidelines on how the assets should be used. For example, you may have assets set aside for college education or to pass on a home. You’ll also set the frequency of when assets should be distributed, so, for example, making distributions monthly, yearly, and so on.

Who is Eligible for a Trust Fund?

You might think that trust funds are reserved for people with the last name Bezos or Gates. But not so. Your net worth matters less than your overall goals with the trust. 

Of course, you want to make sure you have enough assets to make the process worthwhile and deal with any fees. You’ll likely need to deal with trust attorney fees, which can set you back a few thousand dollars. 

How to Set Up a Trust Fund 

If you’re wondering how to start a trust fund, we’ve outlined the steps to get started.

  1. Choose which assets to include in the trust: This could be real estate, stock, bonds, or cash. 
  2. Select a beneficiary: Your beneficiary or beneficiaries will receive your assets. 
  3. Set guidelines: How do you want your money or assets to be used? Make sure your trust is set up to support your ultimate goals. 
  4. Choose a trustee: If this person isn’t you (it’s possible to be your own trustee for a living trust), make sure you trust this trustee and understand how the account will be managed. 
  5. Choose between a revocable trust or an irrevocable trust: Remember, the former can be modified and the latter can’t (without the beneficiary’s input).
  6. Go to a trust attorney: You can see a trust attorney in your state to open up a trust and get started. 
  7. Register your trust with the Internal Revenue Service (IRS): Your trust will need to have its own taxpayer identification number in the form of an Employer Identification Number (EIN), which you can get from the IRS. 
  8. Deposit your assets into the trust: Move over your money into your trust for safekeeping and protection. You may need to fill out specific paperwork to move assets from one account to another. 

If you need to figure out how to set up a trust fund, take these eight steps to get started. You don’t have to get an attorney but it can be a wise idea. You can also check out a company like Trust and Will and look into wills as a more affordable way to pass on your assets. For example, a trust could be $399-$499 with Trust and Will, compared to thousands of dollars in attorney fees and/or you could set up a will for free. 

Setting Up a Trust Fund: Advantages and Disadvantages

If you’re wondering whether setting up a trust fund a good idea, you’d want to understand the full picture and review the pros and cons of having one.


  • Control over where your assets go;
  • Power over how assets will be used and the frequency they’ll be distributed; 
  • Increased privacy, as you can stay away from probate court; 
  • An irrevocable trust can help you avoid estate taxes.


  • Can be costly; 
  • No ability to make changes without a beneficiary on an irrevocable trust; 
  • Dealing with a trustee or manager that is incompetent or distrustful. 

Is Setting Up a Trust Fund a Good Idea?

If you want to protect the money you’ve earned or the assets you’ve accumulated over your life, you might be questioning whether setting up a trust fund is a good idea. If you have a family, favorite charity, or a desire to reduce tax liability on estate taxes, setting up a trust fund could be a good option. 

Be sure to research total fees, pros and cons, and have a clear goal for what you want to do with your assets. If you need further details on how to set up your trust fund, don’t hesitate to reach out to a professional, too.


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Melanie Lockert
Melanie Lockert is the founder of the blog and author of the book, Dear Debt. Her work has appeared on Business Insider, Time, Huffington Post and more.

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