How to Open a Child Trust Fund

By Stephanie Kurose, J.D.

How to Open a Child Trust Fund

By Stephanie Kurose, J.D.

As a parent, opening a trust fund for your children is a great way to ensure they are taken care of in the future. While trust funds have historically been linked to wealthy families, anyone can open a trust fund. In fact, more and more parents are turning to trusts as a way to provide for their children when they are no longer around.

Child smiling on swing

Fundamentals of a Trust Fund

A trust fund is a legal entity that can hold assets for the benefit of another individual or organization. The creator of the trust, also known as the "grantor," can transfer almost any asset into the trust and determine how and on what terms those assets will be distributed. The "beneficiary" is the person or organization that benefits from the trust, and the "trustee" is the person who manages the trust on behalf of the beneficiary.

There are many reasons parents may wish to transfer their assets into a trust. For instance, any property held in trust avoids the lengthy probate process and is automatically distributed to the named beneficiaries upon the grantor's death. In addition, by naming a trustee who carries a fiduciary duty, parents can be completely sure that their wishes will be carried out according to their own terms.

Preparing to Open a Trust Fund

There are a number of decisions that parents must make before they actually open a trust. Much of the process for opening a trust fund is simply preparation.

1. Determine the purpose of the trust and who the beneficiaries will be.

Parents may want to pass on an inheritance or real estate, or the trust may be intended for college savings. There are specific sets of laws and guidelines that must be followed depending on the purpose of the trust, so this needs to be carefully decided. Will the contents of the trust be distributed to all the children, or will certain assets go to certain beneficiaries? These are a few of the initial questions parents must consider when opening a trust fund.

2. Determine how the trust will be funded.

A trust fund is useless if there is nothing in it. Parents must consider their determined purpose for the trust and then decide what assets they want to transfer ownership of into the trust. Assets can include money, real estate, investment accounts, etc. It is critical that parents actually transfer legal ownership of their assets to the trust. For instance, if the parents want to transfer ownership of a house to the trust, they must actually amend the deed to reflect the change in ownership.

3. Determine who will manage the trust.

Choosing the trustee is one of the most important decisions a parent can make in terms of opening up a trust fund. This person must be capable, qualified, willing, and, most importantly, trusted by the parents.

Establishing the Trust Fund

Once all of the prep work is done, it is finally time to legally create the trust. Creating the trust is simple if you have carefully prepared.

1. Sign a trust deed.

Meet with an experienced estate planning attorney in your state who can help properly prepare these legal documents according to your goals and purposes. Once the legal documents are signed, the trust is fully operational.

2. Transfer assets into the trust.

This can include opening an account for the trust at the institution of your choice to deposit financial assets or legally transferring property, depending on your preparatory decisions about the purpose of the trust and how it will be funded.

After some preliminary thought and preparation, opening a trust fund is a straightforward process.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.