Savings in a jar that can be used to start a trust fund

Trust Funds: Are They Just For The Super-Rich?

When you think of “trust funds”, what comes to mind? For most people, it’s an older millionaire and their family. It’s a common scene in some movies—the one where the grandchildren are trying to cajole their grandparents into letting them into their trust funds early. Or in romance novels, where the hero or heroine has to be married before they turn 30 or they lose their trust fund so they don’t grow up to be too focused on their work.

The common thread, though, is that the trust fund of the fiction world is worth at least a $100,000! For most people, that’s as much (or more) as they make in a year. Does that mean that trust funds are only for the very wealthy? In a nutshell, no. Trust funds can offer you many benefits, even if you only have a more modest sum to invest.

Benefits for the Middle Class

  1. No Income Tax
    Because the money you put into an irrevocable trust fund is no longer yours, but the trustee’s, it isn’t classified as income. That means you don’t have to pay income taxes on it. If it’s set up the right way, you may not have to pay estate or gift taxes on the money either. An added perk? Since it’s the trustee’s until it’s paid out, it won’t be counted against your beneficiary if they’re applying for financial aid.
  2. Security
    Another benefit to an irrevocable trust is that since the money is officially under the care of a trustee, it’s safe. When we say safe, we mean safe. Money in a trust fund is protected from divorce, bankruptcy, and even tax liens.
  3. Kiss Trust
    A Kiss Trust is a kind of irrevocable trust fund that can be set up with a low initial investment. You then have the ability to make monthly payments to increase the sum of the trust. Kiss Trust simplifies the process by offering three plans to choose from, so you don’t even need to hire a lawyer. A Kiss Trust is an ideal family trust fund because you can set up an infinite number of people as trustors (people who can pay into the account).

Alternatives to a Trust Fund

Setting up a trust fund can stick you with some pretty sizable legal fees. To get started, you should go to a lawyer with specialized expertise in trust fund setup. That can cost you a pretty penny. To avoid these legal fees, you might look at just using a run of the mill will. If you want to control the money somewhat, you could use a 529 College Savings Plan or UGMA/UTMA Custodial Accounts which restrict the funds until the beneficiary is in college.

Use a Calculator

When you’re trying to decide which option you should go with, you should consult online calculators, such as a trust fund calculator or savings account calculator. These tools help you compare factors such as inflation, interest, and length of account payout. Trust fund calculators, in particular, can help you calculate exactly how much your trust fund (whether you are the benefactor or beneficiary) is worth as an asset. 

Last Updated: July 12, 2016