While you might begin with the idea of memorializing a family member or friend, or collecting money for your relative or friend's family, you should define your purpose more precisely. For instance, do you want the money in the trust to be used to educate the deceased's children, or to pay for funeral expenses? Or maybe you want to raise funds for a charity in the deceased's honor. You should state the purpose of the trust both in documents that establish the trust and in any fund-raising material you use to publicize the trust or distribute to donors.
Someone needs to oversee the trust and distribute money for the stated purpose. This can be an individual or a group of individuals, or even a third party such as a bank administrator or a lawyer. The person must be trustworthy, capable of acting in the best interests of the trust, and good at handling money. Appointing a group of people, or a board, to administer the trust divides responsibilities and helps safeguard against fraud. The trust administrator or administrators will be a signatory on the account where the funds are kept, and will write checks to distribute the money in the account; if there is a board of trustees, the administrator will answer to it. The administrator also needs to file required tax paperwork for the memorial trust. One way to handle administrative duties is to open your trust under the auspices of a community foundation, hospital, university or other organization where other people have already established trusts. These organizations have dedicated staff who will handle administering the trust for you.
The financial institution in which you choose to safeguard the money in the trust will require a tax identification number for the trust. In order to apply for a tax ID, you'll need legal documents formalizing the trust and its purpose. Contact a lawyer who specializes in charitable trusts. If you don't know one, ask other local charities for recommendations. With documentation establishing the trust and a tax ID number, you can open a trust account at a bank. The bank will require you to fill out an application and may have its own rules for how the money is handled. For instance, the bank may limit the number and size of withdrawals from the account each month.
The IRS exempts charitable trusts from paying income tax, but you will need to complete an information return, Form 990-PF, each year. This form details the money the trust collects each year, the money it distributes, and any administrative costs, such as bank fees. Your state may also require you to complete a return for the trust. Donors who contribute to your trust may or may not be eligible for a tax deduction for their contributions. A charitable trust that benefits an individual or family doesn't qualify as a charitable organization under IRS rules. If, however, you establish the trust as a 501(c)(3), contributions are tax deductible, but in this case the funds may not benefit any private individual or private interest.