A trust fund is an estate planning device that determines a legal entity to retain property and/ or assets for an individual or organization, administered by a trustee that is an unbiased 3rd party. Trust funds may retain an assortment of assets like capital, real property, stocks and/ or bonds, businesses, or a mixture of different kinds of properties or assets. Trusts may be created under a wide range of documents and provisions.
Key Trust Fund Takeaways
- Trust funds are designed to retain and manage assets on someone else’s account, with the assistance of an unbiased 3rd party.
- A trust fund is comprised of the grantor, beneficiary, and trustees.
- The grantor of a trust fund may establish the conditions for how assets are to be handled, gathered, or allocated.
- The trustee administers the assets of the fund and carries out its instructions, whereas the beneficiary collects the assets or additional benefits from the fund.
- The most typical types of trust funds include revocable and irrevocable trusts, but many other variations are in existence for specific intentions.
The Way Trust Funds Work
There are 3 vital parties that are comprised of in a trust fund—grantor (compiles a trust and fills it with their assets), beneficiary (the person designated to get the trust funds assets), and trustee (responsible for administering the assets in the trust).
The main reason to create a trust fund is for a person—or entity—to establish a means that places terms for how assets are held, collected, or allocated in the future. This is the key element that distinguishes trust funds from other estate planning devices. Typically, the grantor is devising an arrangement that, for various reasons, is executed after he or she is determined to be mentally incompetent or is no longer alive.
The development of a trust fund determines a relationship where a designated fiduciary, or trustee, operates in the primary interest of the grantor. A trust is devised for a beneficiary that receives the benefits, like assets and income, out of the trust. The fund may contain almost any asset conceivable, like cash money, stocks, bonds, properties, and/ or additional kinds of financial assets. A single trustee – this may be an individual or entity, like a trust bank—deals with the fund in a way that is in accordance with the trust fund’s provisions. This typically includes a little allowance for living expenses and maybe educational expenses, like a private school.
Common Kinds of Trust Funds
There are several kinds of trust funds, but the most typical are revocable and irrevocable trusts. Further reading is a fast summary of each kind of fund.
- A living trust also called a revocable trust, allows a grantor more management over assets throughout the grantor’s lifetime. It is a kind of trust whereas a grantor places assets inside a trust that may then transferred to several designated beneficiaries following the grantor’s passing. It is typically used in the transferring assets to children and/ or grandchildren, the main benefit of a living trust is that the assets bypass probate, leading to quick asset allocation to the beneficiaries. Living trusts aren’t made public, meaning an estate is divided with high levels of privacy. When the grantor is still alive—and isn’t incapacitated—the particulars of the trust may be modified or revoked.
- Irrevocable trusts are extremely difficult to modify or revoke. Because of these arrangements, there may be significant tax benefits for the grantor to adequately give away the management of the assets to the fund. Irrevocable trusts typically bypass probate.
What Is a Trust Fund and How Does It Work? [Updated], meetfabric.com/blog/what-is-a-trust-fund.
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