Question: Is it possible for me to set up a trust fund for my grandson in such a way that it won’t impact any college financial aid he might qualify for in the future? The money needn’t be available to pay for college, because the parents have planned for that. I’m thinking I might put about $50,000 into it over time and allow him to receive the money around age 25, assuming he turns out to be a responsible adult who will use the money wisely — not squander it on toys or — God forbid — something like drugs. I don’t think that would happen, but it’s always on one’s mind. How would I go about this?

Ric: The nice thing about trusts is that you set the rules. Few situations in life allow you to do that!

A trust is treated legally the same as a real person. For example, a trust gets its own tax ID number, just as a person does, and it can buy and sell assets. But trusts are dumb — they don’t know what to do with the money you give them. They don’t know how to invest, how to spend or when to do these things. So you have to create a set of rules for them.

That’s what a trust agreement is all about. And you can write those rules pretty much any way you like. First, name the grantor. In this case, that’s you: You’re the one creating the trust and putting money into it. Next, name the beneficiary — the person who will derive the benefits from the trust. That’s your grandchild. You can name multiple beneficiaries in a single trust, or you can create multiple trusts with one beneficiary for each.

You said you don’t want the funds to be used for college or to interfere with any financial aid your grandson might receive. That won’t be a problem if the money isn’t going to be available to him until he turns 25 — that’s well after his graduation. The parents wouldn’t even have to disclose the trust’s existence (if applying for financial aid) because the funds wouldn’t be available. If he’s going to graduate at age 26, it could be an issue, but let’s assume that won’t be the case here.

Besides making the funds available at age 25, you can set other conditions. For instance, if you worry that your grandson will be immature and might squander $50,000, you might decide to give him an allowance instead — say, $5,000 or $10,000 per year. Or perhaps he could get half of it at age 25 and the rest at age 45. Or you can or create some other approach. You can even stipulate that he can have money only to purchase a house or pay medical expenses. It’s your trust, so you set the rules. You could even say that he gets the money only if he wears red pants or stands on one leg for an hour!

To create your trust, hire an estate attorney. Trusts are complex, and the IRS might weigh in. For example, some tax laws involve gifts to trusts. Your attorney will also help you consider situations you haven’t thought of, so rules can be written into the trust. For example, what if the child becomes disabled? What if you don’t like the person he marries?

Once you’ve set the rules, leave the paperwork to your attorney. When he or she is done, you’ll sign the documents and the trust will be ready to be funded. You’ll need to open a bank or brokerage account in the trust’s name and transfer money into it. That’s all there is to it. If you don’t have an estate attorney or know of one, contact us for a referral.

The use of trusts involves a complex web of tax rules and regulations. This material was prepared for informational and/or educational purposes only. Neither Financial Engines Advisors L.L.C (also referred to as Edelman Financial Engines) nor its affiliates offer tax or legal advice. Be sure to consult with a qualified tax or legal professional regarding the best options for your particular circumstances.