Establishing a trust fund permits you to parcel out funds to minor children and relatives. Money held in a trust fund can be used as an incentive for children to complete college or as a way to ensure adult children have steady income during their early adult years. You can, for example, give a certain beneficiary a predetermined monthly allowance as incentive to complete college.
Trust fund money can be allocated monthly; however, such an arrangement must be written out in a trust document. A trust document is a legal instrument used to convey instructions to a successor trustee. Often, a trust document contains very specific language regarding the management and distribution of trust property after a trust grantor's death. Blank templates are available through legal document suppliers; although, fees may apply.
When filling out a trust document, include the names of the parties involved in the trust. Identify the beneficiary who will benefit from the money and offer specific instructions regarding any payment schedule you want followed. For example, indicate that a specific beneficiary will receive a monthly payment of $2,500 until he reaches age 30, at which time a final payment of $25,000 will be given.
Totten Trust and "Pay on Death" Accounts
Whether you set up a Totten trust -- a type of financial account that holds money for an heir -- or an account that is "payable on death," you need a successor trustee to carry out the monthly payment arrangement you desire. The successor trustee must take ownership of the trust account and then comply with your payment arrangement. As the account owner, the successor trustee can issue monthly checks per your instructions.
When deciding on the monthly payment amount you want allocated, be mindful of the tax implications. For example, you can prevent a beneficiary from paying a hefty tax bill by allocating trust funds in accordance with the annual tax-free threshold. If a beneficiary receives an annual sum greater than the tax-free threshold, she must pay at her personal marginal tax rate. Find the annual tax-free threshold for trust gifts on the Internal Revenue Service website.
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