A trust fund is a separate legal entity that holds property and other assets to benefit an individual or an organization. They can benefit future generations. These assets include money, stock, property, or a business. The main purpose for establishing a trust fund is for a person or entity to create terms for the way the assets can be gathered and distributed in the future.
There are three main parties to all trust funds, the grantor, the beneficiary and the trustee. The person who creates the trust is known as the grantor, donor or settlor. The grantor is the one that donates the property such as cash, stocks, bonds, real estate, and anything else of value.
The beneficiary is the person for whom the trust fund was established. The assets do not necessarily belong to the beneficiary. Instead, they will be distributed to them as per the wishes of the grantor and in a way that is beneficial for the beneficiaries.
After a trust is formed, it can be managed by an individual or a corporate entity also known as the trustee. A relative, professional, corporation or a loyal friend can be assigned as trustees. You can also have multiple trustees. The trustee ensures that the trust fund is able to maintain its duties applicable under the law and pursuant to the trust documents. A small management fee is often given to the trustee for managing the trust fund.
There are several types of trusts, ones that are enacted while you are living and ones after you pass way. A living trust, which can be revocable, permits the controlling of assets during the lifetime of the grantor. This type of trust allows the grantor to distribute or transfer the assets to any number of beneficiaries. It is commonly used to transfer funds to children or grandchildren.
The trust can be modified or revoked while the grantor is still living. However, an irrevocable trust is very difficult to change but it offers several tax benefits.
This is a list of some specific trusts that can be created:
- A charitable trust is created to benefit a particular charity or the public in general. A Charitable Remainder Unitrust (CRUT) is formed to give assets to a specific charity at the expiration of the trust;
- A marital trust is funded at one’s spouse’s death and is eligible for unlimited marital deduction;
- A land trust is a trust created to manage property;
- A Medicaid trust assists elderly individuals in regards to probate issues and assets for Medicaid matters and payments; and
- A special needs trust is a trust formed for a person who receives government benefits so as not to disqualify the beneficiary from attaining the government benefits.
Properly transferring funds to your trust creates a way to distribute your assets to the probate while your living and after you have died. Funding your trust while you are alive guarantees that your property is distributed according to your wishes. This can be all specified in your will.
Funding a trust depends on the nature of the property. You can transfer real estate property. Also, you can transfer titled personal property such as cars, trucks, boats and RVs. Additionally, funds can be raised through accounts receivable, transferring business interests, and funding securities. A “pour-over will” can be utilized to fund your trust after you pass away. This will be useful in detecting any missed assets and can be sent to your trust.
There may be many benefits of a trust fund, depending on the type of trust fund and the needs of the person. These include:
- Generally, trust funds are private and only the beneficiaries or trustees know the instructions of how the assets will be distributed;
- Can shield your assets from potential lawsuits and probate costs;
- Provides tax benefits from estate taxes with additional provisions added to the will;
- There is flexibility in terms of time, a trust can provide for distribution over a period of time. For example, a yearly or monthly allowance for a child until they reach a predetermined age;
- Life insurance policies and retirement plans are covered property under a trust but not under a will;
- A trust can live on indefinitely and;
- You can create the conditions for the trust on how to distribute your assets to your family. For example, grandparents can set up trust funds for educational expenses of their grandchildren.
If you are considering creating a trust fund it would be useful to consider seeking guidance from an estate lawyer to transfer assets and ensure their legality. Without the funds properly being allocated, the trusts are not considered useful for the beneficiaries. Navigating through distributing assets and knowing how to raise funds for the trusts are complex issues. Therefore, further guidance from an estate lawyer is needed to form a trust fund.