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What Is A Trust Fund?

Many people consider using a family trust fund to pass down money or assets. While a trust fund may often be dismissed as a tool of the very rich, it is entirely possible for you or anyone you know to use a trust fund to its full potential.

What is a Trust Fund?

A trust fund, put simply, is a legal entity that maintains assets in the interest of another person. While there are many different types of trust funds, most trust funds have the following three parties:

  • Grantor: the person who donates the assets to be contained in the trust fund. This person also decides how the trust fund will be run.
  • Beneficiary: the person who will receive the assets of the trust fund. The grantor determines how the assets will be used to best benefit the beneficiary.
  • Trustee: the person charged with overseeing and managing the trust fund. It is up to the trustee to make sure that the assets of the trust fund can be used by the beneficiary.

Trust funds offer customizability that you have when determining how the funds will be spent. For example, if you wanted to leave money to your grandchildren, you don’t have to just give it to them. Instead, it is entirely possible to set stipulations that prevent your grandchildren from misusing the money, which helps reduce the damage of a young person’s potentially irresponsible decisions.

What are the Advantages of a Trust Fund?

There are several advantages to using a trust fund instead of just letting your beneficiaries inherit the money, a few are listed below.

  • Control: It is possible to control a great deal of how the assets in the trust fund will be used, especially if you intend to use the trust fund to pass on assets after death.
  • Avoid probate: The term probate refers to the process that a will must undergo in order for it to be determined valid after death. A trust fund bypasses this process.
  • Guaranteed management: Should you become unable to manage the trust, you know that the trust will continue to operate as it should.

What are the Disadvantages of a Trust Fund?

While there are numerous advantages, there are also some disadvantages you may want to consider before acquiring a trust fund.

  • Establishment cost: A trust must be funded at the time it is formed, meaning that it is very costly to set up a significant trust.
  • Debt: It is possible that your unpaid debt can be settled from the trust.
  • Limited flexibility: A trust is designed to be airtight. Unlike wills, a trust does not update automatically upon marriage, divorce, or childbirth.

A trust is a useful and versatile tool that can be utilized by anyone. Speak with a well-informed attorney about establishing a trust in order to see if it is the best option for you.

Last Updated: July 12, 2016