Trust Fund
What Is a Trust Fund?
A trust fund is a legal arrangement that starts when an individual or organization, “the grantor,” sets aside money or property for another person, “the beneficiary.”
The grantor can assign someone,“the trustee,” to manage the money or property until the beneficiary is of age, or the grantor can set rules for the trustee.
They can also name themselves as trustee and transfer ownership of the assets to the trust.
When Are Trust Funds Used?
Trust funds are typically set up to provide education, health care, living expenses, and other needs for minor children and grandchildren.
However, they can be created to provide income and inheritances for any number of people at any time in their lives. Trust funds are usually established with cash and other investments like stocks and bonds.
These types of funds are usually set up by estate planning attorneys so that they're in place before their owners pass away.
When this happens, they become part of an individual's estate plan and are distributed according to how much money the grantor provided and how it's invested by the trustee.
This can be done either through a will or through a living trust document.
How Does a Trust Fund Work?
A trust fund allows you to give money or property to someone else while retaining some control over how it's managed or used.
For example, if you want your children to receive an inheritance but don't want them to have access to it until they are adults, you can put their inheritance into a trust fund and designate an age at which they'll be able to receive those assets.
This arrangement allows you and your family members to make decisions about your finances without having any direct contact with each other — all of the responsibilities fall onto the trustee.
The trustee is responsible for managing the money in accordance with your wishes, as outlined by yourself or your attorney before death or incapacitation.
Benefits of creating a trust fund
Trust funds can provide you with certain benefits and protections upon your death, including:
- Tax-deferred growth in assets that may be used for the benefit of family members at some future date.
- Protection against creditors during and after your lifetime.
- Full legal title to assets by the grantor (you) until the distribution is complete. You can also use these assets to pay estate taxes.
- Ability to protect minor children's inheritance until they reach adulthood.
- Privacy about how much you have in assets and who inherits them.
Disadvantages of a trust fund
Regardless of how good trust funds sound, there are a few disadvantages to consider before deciding whether to set one up.
- Trust accounts do not allow for immediate transfer of funds out of the account or into other accounts. This may limit the flexibility you need for investment options as well as value appreciation.
- Social Security benefits are a form of retirement savings and are not included in trust accounts.
How to Start a Trust Fund
A trust fund may be created when you inherit assets from someone else, such as a parent or grandparent.
Or it may be set up when you purchase some assets and then put them into an irrevocable trust fund. Irrevocable means that the assets will never become part of your estate, which could otherwise be subject to taxes upon death.
To get started with a trust fund, you will probably need to meet with an attorney and decide on:
- how the money will be managed,
- who the trustee of the fund will be—this person is legally responsible for the investment and should also know how to manage money effectively.
- who will inherit the assets in the fund,
- other factors like how often distributions can be made to heirs and what those heirs must do to receive them.
Finally, you need to fund the trust fund. That means transferring ownership of your assets into the name of the trust so that it owns them instead of you. This can be done by transferring property deeds or titles, changing retirement plan beneficiaries, and so on.
You may also want to work with an estate planning attorney to draft up documents defining who, exactly, receives what portion of your assets when you die.
Once these decisions are made, you'll want to find some investments that fall in line with your goals and risk tolerance—this could be stocks or bonds from companies or government entities, real estate properties, or other assets.
Remember: the grantor does not retain any ownership over the assets once they have been transferred into the trust.
Download Your Free Living Trust Form
Setting Up a Trust Fund for Your Kids
Trust funds for children can be a great way to ensure that your kids have a financial head start in life.
If you set up a trust fund for your child, a trustee invests money on their behalf until they are of age to access it.
There are some benefits to this:
- Not having to wait until the child is an adult to invest for them. Depending on their age, investing in things like real estate or other assets could yield more potential profit than if you had waited until they were 18.
- Allowing the child to put the money into an account where it will be safe from potential creditors/lawsuits down the road (this can protect it from bankruptcy).
As long as you choose an investment that is safe and low risk, then this type of arrangement should work out well for all concerned parties over time.
Investing in a trust fund for your child provides them time to grow into their own financial responsibilities.
Most funds can't be accessed until the child is 18 or 21, which gives them time to learn about how money works and how to use it responsibly. You'll want to do some research on which types of accounts are best for you and your family's needs.
Once you establish an account, you'll also want to decide on how much money you want to put into it per month or year.
This amount should depend on what you can afford as well as any goals you may want the funds to achieve, like paying for college tuition or buying a house later in life.
You can use trust funds to transfer any asset—not just cash. A car, house, heirlooms, and artwork are all valid assets you can put into a trust fund and make sure they go to your child later on.
What Is a Trust Fund?
A trust fund is a legal arrangement that starts when an individual or organization, “the grantor,” sets aside money or property for another person, “the beneficiary.”
The grantor can assign someone,“the trustee,” to manage the money or property until the beneficiary is of age, or the grantor can set rules for the trustee.
They can also name themselves as trustee and transfer ownership of the assets to the trust.
When Are Trust Funds Used?
Trust funds are typically set up to provide education, health care, living expenses, and other needs for minor children and grandchildren.
However, they can be created to provide income and inheritances for any number of people at any time in their lives. Trust funds are usually established with cash and other investments like stocks and bonds.
These types of funds are usually set up by estate planning attorneys so that they're in place before their owners pass away.
When this happens, they become part of an individual's estate plan and are distributed according to how much money the grantor provided and how it's invested by the trustee.
This can be done either through a will or through a living trust document.
How Does a Trust Fund Work?
A trust fund allows you to give money or property to someone else while retaining some control over how it's managed or used.
For example, if you want your children to receive an inheritance but don't want them to have access to it until they are adults, you can put their inheritance into a trust fund and designate an age at which they'll be able to receive those assets.
This arrangement allows you and your family members to make decisions about your finances without having any direct contact with each other — all of the responsibilities fall onto the trustee.
The trustee is responsible for managing the money in accordance with your wishes, as outlined by yourself or your attorney before death or incapacitation.
Benefits of creating a trust fund
Trust funds can provide you with certain benefits and protections upon your death, including:
- Tax-deferred growth in assets that may be used for the benefit of family members at some future date.
- Protection against creditors during and after your lifetime.
- Full legal title to assets by the grantor (you) until the distribution is complete. You can also use these assets to pay estate taxes.
- Ability to protect minor children's inheritance until they reach adulthood.
- Privacy about how much you have in assets and who inherits them.
Disadvantages of a trust fund
Regardless of how good trust funds sound, there are a few disadvantages to consider before deciding whether to set one up.
- Trust accounts do not allow for immediate transfer of funds out of the account or into other accounts. This may limit the flexibility you need for investment options as well as value appreciation.
- Social Security benefits are a form of retirement savings and are not included in trust accounts.
How to Start a Trust Fund
A trust fund may be created when you inherit assets from someone else, such as a parent or grandparent.
Or it may be set up when you purchase some assets and then put them into an irrevocable trust fund. Irrevocable means that the assets will never become part of your estate, which could otherwise be subject to taxes upon death.
To get started with a trust fund, you will probably need to meet with an attorney and decide on:
- how the money will be managed,
- who the trustee of the fund will be—this person is legally responsible for the investment and should also know how to manage money effectively.
- who will inherit the assets in the fund,
- other factors like how often distributions can be made to heirs and what those heirs must do to receive them.
Finally, you need to fund the trust fund. That means transferring ownership of your assets into the name of the trust so that it owns them instead of you. This can be done by transferring property deeds or titles, changing retirement plan beneficiaries, and so on.
You may also want to work with an estate planning attorney to draft up documents defining who, exactly, receives what portion of your assets when you die.
Once these decisions are made, you'll want to find some investments that fall in line with your goals and risk tolerance—this could be stocks or bonds from companies or government entities, real estate properties, or other assets.
Remember: the grantor does not retain any ownership over the assets once they have been transferred into the trust.
Download Your Free Living Trust Form
Setting Up a Trust Fund for Your Kids
Trust funds for children can be a great way to ensure that your kids have a financial head start in life.
If you set up a trust fund for your child, a trustee invests money on their behalf until they are of age to access it.
There are some benefits to this:
- Not having to wait until the child is an adult to invest for them. Depending on their age, investing in things like real estate or other assets could yield more potential profit than if you had waited until they were 18.
- Allowing the child to put the money into an account where it will be safe from potential creditors/lawsuits down the road (this can protect it from bankruptcy).
As long as you choose an investment that is safe and low risk, then this type of arrangement should work out well for all concerned parties over time.
Investing in a trust fund for your child provides them time to grow into their own financial responsibilities.
Most funds can't be accessed until the child is 18 or 21, which gives them time to learn about how money works and how to use it responsibly. You'll want to do some research on which types of accounts are best for you and your family's needs.
Once you establish an account, you'll also want to decide on how much money you want to put into it per month or year.
This amount should depend on what you can afford as well as any goals you may want the funds to achieve, like paying for college tuition or buying a house later in life.
You can use trust funds to transfer any asset—not just cash. A car, house, heirlooms, and artwork are all valid assets you can put into a trust fund and make sure they go to your child later on.