How to Set Up a Trust Fund for a Dead Friend's Children

Many people struggle with ideas on how to help the children of a deceased friend; setting up a trust fund for a dead friend's children can be a good option.

In the 1930s, only well-to-do families such as the Rockefeller's provided their children and grandchildren with these kinds of gifts for the future. In the 21st century, trust funds have become a common way for parents to help their children plan for the future. What causes confusion is when it is a trust fund for a dead friend's children.

What Is Included

  • A trust fund allows people to give sustained benefits to another person. This could be cash, stocks and bonds, property, or other financial instruments. Some choose to set up a trust fund for a dead friend's children to help with future college expenses. 

Types of Trust Funds

  • There are various types of trust funds. The first is called a Section 2503 trust. This allows the child to use the trust fund until the age of 21. At that time all funds must be paid to the child, and he can decide if he'd like to continue the trust fund. The second is called a Section 2503b trust. This account requires that income be distributed annually to the child. If he or she is too young, this can go into a custodial account until old enough to handle the amount of money. A trust fund for a dead friend's children for education doesn't necessarily have to be used for education, but if they are not they are taxed.

Ways to Set Up a Trust Fund

  • It is always a good idea to talk with an advisor, lawyer, or your bank before setting up a trust fund for a dead friend's children. You would be eligible for a gift tax exclusion, and resources such as the above can give you the most current information. This can also vary depending on your country as well. If there are various children it is a good idea to give them each a separate account. This can be as simple as putting the account in your name with the child as the beneficiary. Remember that once the trust fund is put into place, all the funds belong to the child. Setting up a trust fund for a dead friend's children may not be the easiest decision, but seeing the looks on their faces many years down the road is sure to be worthwhile.