by Erik Dodge

Created on: January 07, 2010

Trust funds have earned most of their attention through rich and famous ‘trust fund babies’. This crew is known for living a lavish lifestyle and not working for even one day to make a living. But trust funds are no longer just for heiresses or the children of Hollywood stars. Now they can be a responsible choice for everyday people looking to ensure financial stability.

A trust fund is a legal arrangement that sets aside money or assets to be managed by a trustee. The grantor, the person who sets up the trust, creates the trust for the benefit of a specific person or group. For example, a married couple might set up a trust fund for their children. The beneficiaries, in this example the children, are typically allowed to use the fund for food, shelter, clothes and education costs but not allowed to draw an annual income until they reach a certain age. In this way, a trust fund can provide for children, even if they have not learned how to manage money responsibly.

The trustee is in charge of making sure that the funds are used in the best interest of the beneficiaries and in accordance with the grantor’s wishes. Trust funds can be managed by one trustee or more than one can be arranged. This is to protect the fund in the event that the original trustee dies. Another option is to name a business or corporation as the trustee. A business can offer more stability while an individual may be able to give a more personal touch.

Cash is not the only asset that can be placed in a trust fund. Property, bonds, stocks and other financial instruments can be placed in a trust fund. Financial profits and increased value can benefit the recipients of the trust fund even before they have access to the entire fund.

In addition to setting up a trust fund for children, funds can also be created for other beneficiaries such as organizations or charities. Trust funds can be arranged to start working at a variety of times. They may start working while the grantor is alive, after their death or at a certain time, for example, when the beneficiary begins college. College, retirement or future business expansions are just a few of the things a trust fund can be created to cover.

A number of benefits can result from starting a trust fund. Most obvious is the financial security the beneficiary of the trust fund can gain. A trust fund can provide for the future needs of children or a business in the event that the grantor dies. Such a fund can also protect one’s estate from taxes and claims upon their death. In addition, a trust fund may be exempt from estate taxes as well as other taxes.             

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