How to Set Up a Trust Fund for Your Child in New Jersey

how to set up a trust fund for a child

As a parent, your top priority is protecting your child’s future. You want to make sure they’re taken care of, even after you’re gone.

One of the best ways to accomplish this? Setting up a trust fund.

Trust funds give you control over assets for your minor children, young adults, or grandchildren. Further, it ensures a child, whether under eighteen or even in their twenties, may not be responsible enough to receive assets. A trust can be established for any monetary amount. I know trusts can seem complicated at first. But with some guidance on the different types, how to set one up, and tips for managing it, the process doesn’t have to be difficult.

In this article, I’ll walk through the ins and outs of creating a trust fund for your child in New Jersey to give you a solid understanding so you can make informed decisions.

Why Consider a Trust Fund?

A properly structured trust lets you avoid probate when you pass away. This saves your loved ones time, legal headaches, and costs down the road. Trusts also allow you to control exactly when your child receives the assets.

You may want to distribute funds at certain ages, milestones, or life events. For example, 1/3 at age 25, 1/3 at 30, and the remainder at 35.

Trust assets are protected from any creditors your child may have, lawsuits, divorces, and more. This provides invaluable asset protection during their youth. Certain types of trusts are specifically designed to minimize estate taxes as well. And for special needs children, specialized trusts can be created to benefit them without affecting government aid eligibility.

The core benefit is control. Trusts empower you to manage assets on behalf of minors who may not be equipped to handle an inheritance yet. You dictate the precise terms to align with your child’s needs and maturity level.

Choosing the Right Type of Trust

If you decide to move forward with a trust fund, the next step is choosing the right type. Here are three common options I recommend considering:

Revocable Living Trust

This is one of the most flexible options. As the person creating the trust (the grantor), you maintain full control over the assets. You can modify the terms, make changes to investments, or even revoke the trust entirely if circumstances change.

Upon your passing, the revocable trust then becomes irrevocable. The assets are transferred to the beneficiaries without probate. The distributions and management follow the instructions you laid out.

Many parents like the flexibility of amending the trust as needed while they’re still around. This allows you to tweak details to align with evolving family circumstances.

Irrevocable Trust

In contrast, an irrevocable trust offers more asset protection but less long-term flexibility. Once you establish the trust, you surrender complete control over the assets to the trustee. You cannot dissolve an irrevocable trust or change the terms.

The key benefit is protection from creditors and tax minimization. An irrevocable trust removes those assets from your taxable estate. This type is commonly used for estate planning purposes and works well when you prioritize asset security.

Testamentary Trust

Finally, a testamentary trust is created within your will. It only takes effect upon your death, not when initially drafted. The trust allows you to control distributions and asset management for young beneficiaries after you pass.

The downside is this type of trust does require probate, unlike a living trust. But the benefit is controlling payouts even beyond the grave. For minors, limiting their access until a certain age makes good sense.

How to Set Up a Trust in New Jersey

Once you decide on the type of trust, it’s time to take care of the logistics. Here is an overview of the key steps involved:

  1. Name the beneficiaries – your children, grandchildren, or other loved ones you want to provide for. You can designate multiple beneficiaries if you choose.
  2. Decide on a trustee. This person or institution will manage the trust assets on behalf of the beneficiaries per your instructions. It’s an important role requiring loyalty and care. Often, a trusted relative, family friend, or corporate trustee is chosen.
  3. Fund the trust by transferring ownership of assets – this gives the trust value. Typical funding assets include real estate, stocks, cash, insurance policies, or valuables.
  4. Draft a detailed trust agreement. Hire a knowledgeable trust lawyer to create the document and ensure it aligns with your wishes.
  5. Formally execute the trust by signing it in the presence of a notary public. This vital step makes the trust legally valid. Be sure to store the original signed documents safely.

Beyond Creation: Maintaining the Trust

After you create the trust, a bit of ongoing management is required:

  • Review the trust periodically to ensure the terms still meet your child’s needs. You may want to make amendments as circumstances evolve.
  • Handle required income taxes for the trust. Trusts are individual entities, so a separate tax return is needed each year. This falls on the trustee.
  • Follow the distribution schedule and instructions you outlined. The trustee must objectively carry out the terms.
  • If needed, replace the trustee. Name a successor trustee in case the original can no longer serve over the long term.

Proper maintenance keeps the trust running smoothly for years to come.

I know we’ve covered a lot of ground here about trusts. But please remember – with the help of an experienced estate planning attorney at The Simone Law Firm, creating a trust fund for your child can absolutely be managed.

Don’t let the details intimidate you.

The rewards are tremendous peace of mind, knowing your child’s future is protected. When you’re ready to move forward, contact us. We’re always available to help explain trusts and ensure your child’s needs are secured for years to come.

Author Bio

michael s. simone, esq.

Michael Simone is the Founder and Managing Partner of the Simone Law Firm, an estate planning law firm in Cinnaminson, NJ. With more than 20 years of experience in criminal defense, he has represented clients in a wide range of legal matters, including estate planning, elder law, probate, real estate, and business law.

Michael received his Juris Doctor from the Rutgers University School of Law and is a member of the New Jersey Bar Association.

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