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What Is a Trust Fund?

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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. It 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 include revocable and irrevocable trusts, but many other variations are in existence for specific intentions.

The Way Trust Funds Work

In a trust fund, three important parties are involved: the grantor (who creates and fills the trust with their belongings), the beneficiary (the person who gets the trust’s assets), and the trustee (responsible for managing the assets).

People create trust funds to set rules for how assets are handled or given in the future. This is what makes trust funds different from other ways of planning for the future. Usually, the person creating the trust (the grantor) makes these plans for a time when they can’t make decisions or are no longer alive.

When a trust fund is made, it forms a relationship where someone called the trustee works in the best interests of the person who created the trust (the grantor). The trust is created for a beneficiary who gets benefits, like money and property, from the trust. The fund can have almost any kind of asset, such as money, stocks, bonds, properties, or other financial assets. A single trustee, who can be a person or a company like a trust bank, manages the fund according to the trust’s rules. This usually includes some money for living and maybe for education, like going to a private school.

Trust Fund

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.

Source:

  1. What Is a Trust Fund and How Does It Work? [Updated], meetfabric.com/blog/what-is-a-trust-fund.

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