How to Set Up a Trust for a Child

Create a list of possible trustees. Your trustee is a fiduciary, meaning they are legally obligated to act in the best interests of the trust assets and the instructions you left for administering the trust, even if the beneficiary does not agree.^[6] A trustee's responsibility can last for your child's entire life.

• Your trustee must be willing and capable of managing the assets as well as administering the pay-outs to your child. Depending on the terms of your trust, this can be as simple as issuing a check, or as complicated as paying individual bills and household expenses.^[7]
• Being a trustee is a legal and contractual obligation. If a beneficiary believes that a trustee is mishandling the assets or not living up to the terms of the trust, she can sue the trustee. If the trustee is found to have breached his duty, he can be liable for reimbursement of lost or squandered assets.
• Any adult can be named as a trustee. However, you need to think about who you choose. You need to balance competency, cost, and commitment to your goals. You also have to think about succession and what will happen to your trust when your trustee retires or dies.

Evaluate your trustee choices. Depending on the complexity of your assets, your trustee must have the business acumen to manage and maximize the corpus and comply with the complicated record-keeping and reporting requirements.^[8]

• If you are considering family members, make sure they will be able to deal with family drama if there is a disagreement. Whether a beneficiary child disagrees with the trustee, or other relatives believe they should have gotten a share, conflicts can have long-lasting negative effects on the family.

Investigate a professional trustee. You have several choices. There are trustee companies, banks, attorneys, or professional individual trustees. Depending on their skill and reputation, any of these choices will be a competent and professional choice who can avoid all conflicts of interest with the beneficiary's family.

• The primary concern is cost. If you use a bank or trustee company to manage your trust, expect to pay a minimum of 1 to 2 percent of the trust's value per year. On one hand, over your child's lifetime, that is a considerable fee. However, a professional trust manager may be more likely to see the best returns on investments. An attorney may either charge a percentage or by the hour. Before you select a trustee, you should sit down with the financial officers of at least three different professional trustees and compare costs.
• Trusts can last for your child's lifetime, or even longer if the trust can pass to her children. Odds are the trust may outlive your trustee. However, you can't name a successor trustee that may not take over for 30 years. Because of this, consider naming a professional trust manager as successor trustee. This will ensure that if a trustee dies, either suddenly or decades down the road, that there will be a seamless administration of the trust.

Designate the assets that you will transfer to the trust. If you are setting up an irrevocable trust, these assets will no longer be in your control and you will no longer have access to them, even in an emergency. In a RLT, you can transfer all assets that you eventually want to go to your child including real estate, business assets, life insurance pay-outs, and financial accounts. Consult with a tax professional on how to allocate your assets to receive the maximum tax benefits.

Detail the terms of the trust. Common trust dispersal plans range from periodic payments to lump sum disbursements for education or purchase of a house. Consider consulting with an attorney on the terms of the trust. Overly restrictive requirements in a trust can be challenged in court. For example, if you say that your beneficiary will only receive payments if she doesn't marry a certain person or doesn't have a child out of wedlock, this could open your trust to a legal challenge that could be very expensive and chew through the assets.

• Decide whether or not the trust will eventually go to your child in total. You can set it up so the trustee makes payments for education and living expenses until your beneficiary has completed her degree or reaches a certain age. At that time, the trust expires and she receives all the assets. Conversely, a disabled child may require the trust to last for her entire life.

Create your RLT document. Because a revocable living trust is fluid and can be easily amended, you can create the trust documents yourself. Forms are available online, through office supply stores, or possibly through your bank or brokerage.^{[9] [10]} You can also consult with an attorney to create a customized RLT document. Regardless, it is a good idea to have an attorney review your trust assignments and amend as necessary.

• Address asset management and investment. You want to ensure that you have the right to specify exactly how the trust assets are invested. You can leave it to the trustee to invest your assets for maximum income or detail the level of risk and types of investments the trustee can pursue.
• Be to include a “trustee removal and replacement clause” as trusts that do not have this clause take away the beneficiary's right to fire the trustee if unsatisfied with his services. You may also want to require the beneficiary to select a new trustee from legitimate bank trust departments if a trustee is fired. You can contact your state Department of Financial Institutions to get a list of licensed trust departments.^[11]

Fund the trust. How an asset is transferred to the trust depends on the type of asset. For example, real estate must be deeded into the trust. Stocks will require that new stock certificates be issued in the name of the trust. An attorney or financial professional can review your assignments and make sure that the documentation is done correctly. This is especially important if business assets are being transferred into the trust.^[12] .

• To transfer a bank or investment account to a trust, simply change the name on the account to the name of the trustee. Name the specific trust, for example, “Jane Smith, as Trustee of the Jones Children's Trust dated [date]”.
• Personal property can be transferred to the trust by describing the property in the trust instrument or by preparing an assignment, which assigns the interest in the described personal property to the trust and is then attached to the trust instrument.^[13]