How to Set Up a Trust Fund for your Children

A few weeks back, people debated on Twitter about the privileges that children get as a result of their parent’s wealth. The conversation (or more like gbasgbos) was very interesting. Some were of the opinion that privileges are not enough because children still have a choice to work hard or not. While others were like, “abeg abeg abeg”. Lol!

Me o, I don’t have any grass to grace story to sell to anyone. My parents gave me a heavy push and I built on that.

— Dr Dípò Awójídé (@OgbeniDipo) May 18, 2021

The first reply to this tweet is “This is the part they don’t tell many people. All they keep saying is, if you can think it, you can achieve it. Alaye koshi.” 

People really have had “aspire to perspire” up to here and I’m only here for the violence conversation. 😭

If you’re a trust fund kid aka someone whose parent’s influence and affluence got you opportunities more than the average person, it’s ok to acknowledge it. It’s not a bad thing that your parents worked really hard to give you privileges they probably didn’t have as kids.

This article, however, is more focused on those who are working hard to have trust fund kids too. If you’ve ever thought about how to make your child’s life way more comfortable than how you had it at first, then this is for you.

Just before you click off thinking “I am not Dangote, I can’t create a trust fund for my kids”, you need to realize that you do not need to be a billionaire to create your own trust fund.

What is a trust fund?

A trust fund is a legal system put in place to hold assets on behalf of an individual or group. These assets in the trust fund can include real estate, bonds, stocks, money, a company (or any type and combination of assets) and is managed by a neutral third party called a trustee. 

A person creating a trust is called the grantor while the person you’re creating it for is called a beneficiary. Trust funds are not only for one’s children and can be established for charities or causes you care about.

People usually raise their nose at trust funds because it is believed that the beneficiaries will become entitled children and though that’s possible, this should not hold you back from creating yours. Trust funds are a great way to invest in your children and literally “give them the world” as many parents say.

How to set up a trust fund

First, as earlier mentioned, a trust fund is a legal entity so there are specific legal steps you need to take to create one. If you’re the one handling it, it is not a trust fund. A trustee is involved in a trust fund so the grantor can be assured that their desires will be carried out to the letter. 

Cue Nollywood movies that show extended family members taking everything from the loved one of a deceased. That’s impossible with a trust fund. 

Here’s a basic explanation of how a trust fund works. Let’s say you’ve had it financially good for a while and realize that no one lives forever, so you want to create a financial softlanding for your children or loved ones.

However, you want something that also doesn’t ruin the lives of these people; wealth can destroy people without any form of accountability. So instead of gifting them everything at once, you meet with a lawyer and set conditions that must be met before certain assets are disbursed. You worked hard for this, so a trust fund allows you to call the shots.

4 easy steps to set up a trust fund

1. Decide who your beneficiaries are and the purpose of the trust fund

Your trust fund can be a combination of assets or you may just want to pass on all your money as an inheritance. The important thing here is to discuss with your lawyer to find out the laws that guide the type of trust fund you’re setting up. This is so that you don’t create one that no one can eventually access due to legal, tax or other issues. Also, it is crucial to determine when the complete transfer of ownership will take place to your beneficiaries. If not legally transferred, you will ultimately remain the grantor and beneficiary. 🌚

Also determine how the assets will be distributed among your children. Will the “black sheep” have stricter rules while the “good kid” flenjors? 

Cue another Nollywood movie with sibling rivalry. 

2. Decide who your trustee will be

A trustee must be someone you trust and who is in the jurisdiction to actually act as one. This is a very important decision and one you don’t want to choose based on sentiments. If you don’t think someone is qualified to be your trustee, do not employ them as one.

3. Decide how you’ll fund the trust

What is a trust fund without any asset called? Non-existent.

You have to determine what assets you’ll put into a trust fund, how you’ll do that and within what time frame. 

As mentioned earlier, the assets in the trust fund can include just one asset or a combination of assets.

4. Legally create the trust fund

After deciding on these major steps stated above, you can now work with your lawyer to create legal documents needed to set up your trust fund. Sign the documents and begin transferring assets into the trust.

But my papa no be Dangote or Adeleke but we go dey ok…

When you set up a trust fund for your children, you’re ensuring they are taken care of if anything ever happens to you. You don’t have to be on Forbes list or be the richest to provide for your children when you’re are no longer around.

If you’ve read up to this part and thought “well, this is interesting, but I don’t have children yet.”

I’m sure you definitely know someone who does, so remember to share this guide with them so they can plan even better for their kids. 👏🏽

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Trust Fund: Meaning, Types and How it Works