What is a Trust Fund?
A trust fund is a legal entity that holds assets on behalf of beneficiaries. It is often used in estate planning as a way to distribute wealth and manage the financial affairs of the trust's creator, known as the grantor or settlor. Trust funds can include various types of assets, such as cash, real estate, stocks, and bonds.
How Trust Funds Work
Once the grantor establishes a trust fund, they appoint a trustee responsible for managing the assets. The trustee carries out the wishes of the grantor as outlined in the trust document. Beneficiaries receive distributions according to the terms set by the grantor, which can occur at specific times or under certain conditions.
Types of Trust Funds
- Revocable Trust: The grantor can modify or revoke the trust during their lifetime.
- Irrevocable Trust: Once established, the grantor cannot change or dissolve it, providing tax benefits and asset protection.
- Testamentary Trust: Created through a will, it comes into effect upon the grantor's death.
- Living Trust: Established while the grantor is alive, allowing for flexible management of assets.
Benefits of Trust Funds
Trust funds offer several advantages, including asset protection from creditors, privacy regarding asset distribution, and potential tax benefits. They can also help ensure that your assets are managed according to your wishes, providing peace of mind for both you and your beneficiaries.