A trust fund is a financial and legal document wherein a third party handles financial assets for the trust beneficiary. The person who makes or provides the financial assets in the trust is called the grantor. The person or institution tasked to manage the funds at the time of the grantor’s death is called the trustee. The lucky recipients of the trust are called the beneficiaries.
If it is arranged during the lifetime of the person who sets up the account, it is called a living trust. If it is arranged after the death of a person, the trust is called a testamentary trust. Both are done with the aid of a lawyer.
Ideally, anyone with any type of asset amounting to at least $500,000 can establish a fund for the benefit of specific individuals or a group or institution. Also, any financial asset can be listed in the trust fund. Cash, property, stocks and other investments can be placed in the trust. Finally, the grantor can name anyone as a beneficiary. For example, if the grantor has a favorite charity he would like to keep supporting, he can name the charity to receive a specific amount even after his death. Some individuals have even been known to list their beloved pets or animals as beneficiaries.
There are many reasons why someone would set up a trust fund:
- Setting up this type of fund is an excellent way to avoid certain taxes, especially those associated with inheritance and probate fees. At the time of death, instead of having the assets go into probate court, the assets are kept safe in the trust. The trust files its own taxes, but it is minimal compared to the exorbitant inheritance taxes. Also, the trust protects assets before marriage in case of divorce.
- A trust fund is a way to ensure that the money is disbursed based on your wishes. If you would like to keep supporting a charity, or provide funding for a business, a trust can be set up. Some people set up a trust fund for medical expenses. In this scenario, people can donate money to the trust and the money is used to pay for a specific person’s medical bills.
- A trust keeps assets safe for minor beneficiaries and is not legally transferred to them until they reach an age and conditions stated in the trust. In the interim, the trustee will release funds to cover the expenses of the minor children until they are able to handle the money themselves.
A grantor can have a trust and a will at the same time. A will is a legal document that basically states the wishes of the deceased regarding how his property and other assets will be managed and dispersed through probate court. The assets are taxed and attorney fees are charged, decreasing the value of the trust. In a trust, a person can control the trust even while he is still alive, and pass it on to a person he trusts to manage it for him at the time of death without having to go through the courts.
Setting up a trust fund can give you the peace of mind that your loved ones will continue to be cared for. Contact a lawyer if you want to set one up.