How to Set Up a Trust Fund for Your Child

There are two ways to set up a trust fund for your child. One is to transfer property into a living trust and appoint yourself as trustee. That way you can manage the trust assets as if they were your own, then a successor trustee manages them for your child after you die. The alternative is to set up a testamentary trust in your will that activates upon your death. The testamentary trust takes less work to manage than a living trust, but doesn't allow the assets to bypass probate.

The first step to setting up a trust fund is to choose the trustee. If the trust holds substantial assets, managing it takes hard work. You need someone you can count on to do the job well, and who won't use the job to enrich herself at your child's expense. Your spouse or partner or a close relative might make good choices. The trustee has the right to refuse the appointment, so don't blindside her. Find out before your death whether she's willing to assume the role, and if not, pick someone else.

The trust declaration is the trust's governing document. Whatever authority you want -- or don't want -- the trustee to have, you should write it into the declaration. If the trust assets include real estate, for example, decide whether the trustee has the right to sell in a boom market, or if you want him to hang on to the property. Also specify at what age your beneficiary comes into full control of the trust assets.

To set up a living trust, research your state's requirements for a trust declaration. Your state government website, local attorneys' websites or a bookstore's legal section are good places for start. Draw up a declaration that meets state law, names you as the trust creator and trustee, and identifies your successor trustee. The declaration must also name the trust beneficiaries. When you finish, have a notary seal the document; then transfer your assets into the trust. For real estate, for instance, you'd make out a deed conveying title from you as owner to you as trustee.