Trust Fund Basics: Setting Up A Family Trust

by Tim Parker on March 20, 2009

Do you have a trust fund as part of your estate plan?

From the days when I knew nothing about finance, I remember hearing the words, “Trust Fund.” Well, it wasn’t until recently that I took the time to learn more about this subject. I bet that if I were to ask 10 people to explain what it is, most wouldn’t really have much to say.

In their lifetime, many people will be recipients of a trust fund. As we all age and family members pass away, it’s important to be aware of what our family has done in terms of estate planning. We should have frank discussions with our loved ones — particularly with those members of our family who are upstanding, mature and able-bodied — about how the family inheritance is structured, and if it so happens that there’s a trust fund in your future, then you should be somewhat familiar with how it works.

Trust Fund Basics and Setting Up A Family Trust

1. A trust fund is simply an arrangement that allows for asset transfers to take place between parties. Often, your fund’s beneficiaries are your children but it could also be a charity or non-profit organization.

2. It can contain all types of investments. We think of these financial vehicles as consisting of only cash, but it can also contain stocks, bonds, or other investment classes.

3. You can set it up to produce cash flow. You can structure it to generate money so that the fund pays out dividends to the recipients, with the principal untouched. For this reason, most trust funds have a manager who is paid either a set annual fee or a percentage of the yearly profits.

4. There are rules and limitations to the fund. It’s important to note that a trust fund normally follows rules and limitations. For example, recipients must typically reach a certain age before collecting benefits. Or you can have fund rules which involve paying out a set amount as living expenses to the recipients. You can also bequeath larger amounts of money as large gifts to certain family members, but this must first be approved by the manager.

5. There is a misconception that trust funds are only for the rich. A trust fund can be established by anybody who has the financial discipline to save. Everything we’ve discussed here can apply to you!

Trust Fund Tips

There is one thing that I think we should address before leaving this topic. I have known more than one person in my life who ended up developing destructive financial habits because they anticipated a trust fund in their future. It’s important to realize that nobody cares about your money as much as you do! If you rely on somebody or something other than your healthy spending and work habits, you are setting yourself up for financial disaster.

It’s not a good idea to be relying solely on your trust fund for financial support. Why? Because the economic downturn could significantly reduce your dividend payments. Or some kind of family fallout can happen that may cause the terms of the trust to be changed in a way that has a negative impact on you. Something unthinkable or unforeseen could happen to the fund. Just ask those who had money invested with Bernie Madoff about this. In short, live your life as if that trust fund doesn’t exist. They work best if you can consider them as a secondary safety net.

It bears repeating: Never rely on anything or anybody other than yourself for financial security!

Contributing Writer: Tim Parker of Elementary Finance

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{ 19 comments… read them below or add one }

1 Meaghan March 22, 2009 at 2:35 pm

Thank you for the post. This is actually something that my family is considering at this time.

2 Phineas June 18, 2009 at 4:11 am

I would like to set up a trust fund for my kids

3 Wekesa June 29, 2009 at 12:40 am

This wonderful idea, thinking in this line with my buddies.

4 wade hughes July 13, 2009 at 6:13 pm

My father has a trust fund and a will, can I see it? My step mother has power of att.

5 Talia September 12, 2009 at 2:34 am

Could someone tell me who usually will manage or execute the trust? Thanks.

6 Gloria Swanson October 23, 2009 at 12:30 pm

Could you write up some information on how to set up a trust account for children that invests in stocks bonds and where the proceeds are distributed each month? Thank you

7 Mrs. Shirley Bartholomew November 24, 2009 at 11:52 am

Could you please tell me how to set up a trust fund for my grandson’s three children . He passed away Nov 10-09. The family has nothing. The wife does not and never did know how to manage money. Therefore we, the family, want to set up a trust fund so the children will be cared for now and into the future. I called a lawyer and he wants 1,000.00 to set it up. The brother and sister do not have that kind of money to set this up. Is there a simpler way to do this? I have talked to my bank and they will handle it once it is set up. Do you think you could help me?

Thank You,
Shirley Bartholomew

8 The Smarter Wallet November 24, 2009 at 3:47 pm

@Mrs. Bartholomew,
Sorry to hear about your loss.

But for everyone asking for advice on this site, please note that we are NOT qualified to give you professional financial advice. We provide information here just for the sake of education and discussion. If you need any assistance, please contact a professional financial adviser. This site is just a personal blog that discusses subjects in finance.

For “do it yourself” type of information, please check out They may have books that you may be able to use to help you with some of your financial processes and paperwork.

Best of luck to you all.

9 robert carrera February 23, 2010 at 12:12 pm

very informative

10 Elphas M. Buthelezi March 11, 2010 at 1:00 am

Could you help me with a draft of a family trust? I need to establish one but do not have a draft to copy from.

11 Minnie Jane Thomas April 20, 2010 at 8:36 am

I, too, could use a draft of a family trust. I need to establish one but do not have a draft to copy from.

12 PATTY HAUPT June 26, 2010 at 8:44 am

yes i want to know more about a fund for my late husband’s children just for those two young men i would like to do something in memorial for his death he died 2 and a half year’s ago at the of 41 over a drug overdose; he also had a mental illness which could have triggered this death . I have been trying to find his sons as long as he has been pasted and i am still so close in finding them the money needs to go them not their mother; she used their dad and took everything he had pretty much. I see why this man had an alcohol and drug problem between her and his step father no wonder he had problems but i need to find out what i can do about a trust fund for the his 2 sons and have it fixed where their mother cannot get it so if you would please email me back on this.

Thank you, Patty Haupt

13 Alan January 16, 2011 at 5:53 pm

I would like to set up a trust fund for my children for a junior trading account. Each of them has a lump sum accumulated through savings accounts which at first paid good interest but not any more. If I am a trustee and buy stock market shares for their fund that makes much more sense than buying each stock 3 times [I have 3 children]. The eldest is coming up to 16 so the fund would run for 2 years. From past experience, I would hope to at least double their money in that time through careful trading on the AIM markets providing there is no collapse. No way they could earn that in a savings account!

14 Shannon August 17, 2011 at 5:22 pm

The only problem with trust are that they are so private, and if family members are not informed in detail about the trust, and speaking of large trust. The holding companys and trustees will not inform you of anything, because they receive fees from these trust. You may never even know it even exist, and they like it that way. If you chose to do a trust make sure to inform the beneficaries and heirs of the trust, and leave papers with them regarding the trust.

15 Mike G October 2, 2011 at 11:34 am

My mother passed away and left me as her Personal Rep. In her will she set up a trust for my sister who lives in Alabama and I live in Colorado. My nephew is the trustee and he lives in Alabama. How do I need to transfer fund from the estate to the trust in Alabama? Do we need a bank account already set up so I can transfer estate funds? Do I set up the acct, or does the trustee do that? Should the account be named the trust’s name? Where only my nephew can take out the funds or anything else?

16 June Bell November 1, 2011 at 10:37 am

Hi I would like to put away savings for my 2 Grandchildren – ages 11 and 6 – problem is I have fallen out with my daughter their mother I also have been stopped from seeing them for over 2 years. So I would like some advice as to how to invest some money for them as I have heart failure and don’t know what the future may bring me.

June Bell

17 Mary January 17, 2012 at 6:14 pm

I am not by any means rich, but I do own my home which is new, have some money, not alot, own a timeshare and have jewelry that my husband had bought me in the 42 yrs we were married. His illness almost cost us everything and I want my children to have what I have. Not the State or Federal Gov’t. What can I do right now to prevent this from happening.

18 Toni Paschall February 7, 2012 at 11:15 pm

What information is needed from each sibling when putting a home in a trust fund? I believe something fishy is going on…

19 JoAnn Gray June 9, 2012 at 12:59 pm

My husband passed away on January 1,2012 from a heart attack. He left no will for me and his kids who are grown. I went to the bank to try and get money from his accounts to pay for the funeral but they told me I was not on the account and had to set up a trust, which I know nothing about. Can you please give advice on how to do this????

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