A trust fund is a financial service that many do not fully understand, and this means that they are not enjoying the many benefits that these accounts can provide a family. A trust fund is used to help family members and loved ones with financial assistance in a variety of unique scenarios, so here is a closer look at the basics of a trust fund, types of trust funds, and who may benefit from them.
Understanding a Trust
There are a number of financial services and accounts that can be used to help preserve various assets and then pass them on. A trust fund does have many of the same features of a will, but they do differ slightly when it comes to legal oversight. Primarily, a trust fund is an entity or account that is created to pass on assets to a specific party in the future. These funds can be setup to pass along anything ranging from retirement and savings accounts to a home and jewelry.
Grantors, Beneficiaries, and Trustees
There are three primary parties that are going to be involved in a trust fund including a grantor, beneficiary, and a trustee. The grantor initializes the trust by ‘donating’ their assets. If the expenses for the trust fund are not paid by the grantor, the monthly or yearly payments can be pulled directly from the trust. The beneficiary is the party that will be receiving the assets at the conclusion of the trust. Beneficiaries are often a spouse or children, but they can be almost any legally-recognized party such as a non-profit organization or a company. The trustee is the institution or individual that oversees the account, often paid a fee for their services.
Types of Trust Funds
The two primary types of funds are living funds and after-death funds, each of which is further divided into a number styles. Living funds are designed to be carried out while the grantor is still alive, generally when they are older and would like to give money to their children or a non-profit organization. After-death trusts are like a will in the fact that they will distribute assets after one’s death with a number of stipulations and unique tax laws. Spendthrift funds will dole out the assets at regular intervals while a section 2503 trust will be fully controlled by a trustee until the beneficiary reaches a certain age.
Who Needs a Trust Fund?
Trust funds provide a number of benefits for those that would like to pass on their assets to specific parties at specific times. When a third-party is used as a trustee, the grantor can set nearly any specification that they would like on their assets which will be fully backed by the law. This may include stipulations such as the beneficiary’s age, finishing school, being married, or having a child. Finally, a trust is going to maximize the amount of assets that are passed on to one’s family by bypassing a variety of tax issues that may arise with traditional wills.