When we hear the term “trust fund,” many of us imagine an ultra-rich kid with a silver spoon in their mouth. While itʻs true that a trust fund can be an attractive investment option for super-wealthy families, it doesnʻt tell the whole story. Trusts offer many benefits regardless of your familyʻs income or situation.
Trust funds are usually created to safeguard and wisely distribute an individualʻs wealth in the event that they become incapacitated or die. There are tax advantages to trusts that are not accessible in the event of a will or life insurance policy. Trust fund distribution often can avoid probate, which means beneficiaries receive funds more quickly.
What exactly is a trust?
A trust fund is a legal entity and an estate planning tool. Trusts provide a way to hold several kinds of assets, including cash, real estate, stocks and even businesses. They are a legally binding arrangement among three parties:
- The grantor initiates the trust, sets its terms and funds it
- The beneficiary receives the assets from the trust according to its terms
- The trustee is a neutral third party, usually an individual or bank, who manages the trust and executes the distribution of assets according to its terms.
A significant benefit of establishing a trust fund is the oversight it offers the grantor. You can set up a trust fund to allocate money for your childrenʻs or grandchildrenʻs school tuition or living expenses. If you have a child with special needs who receives disability payments from the government, you can set up a trust that disperses money for living expenses in a way that does not prevent them from receiving their disability benefits.
No matter your familyʻs financial wealth or circumstances, estate planning can provide immense peace of mind. Learning more about the many types of trusts and other tools available can help you make the best decisions for your descendantsʻ future.