You may have heard the term “trust fund” thrown around regarding estate planning. But what is a trust fund, and how does it work? Let's break down the basics of trust funds and explain how they can benefit you and your loved ones.
A trust is created by a person (the “grantor”) who transfers assets to the trust and is managed by a trustee responsible for managing the assets and distributing them to the beneficiaries according to the terms.
It can be used for various purposes, such as avoiding probate, minimizing taxes, and protecting assets from creditors. They can also provide for loved ones needing ongoing financial support, such as minor children or disabled adults.
What is a Trust Fund?
A trust fund is a legal entity set up to hold a trust's assets. It holds the assets on behalf of one or more beneficiaries. The assets in a trust can include anything from cash and investments to real estate and personal property.
The trustee of a trust fund oversees the management of its assets, making investments on behalf of the beneficiaries. The resulting income from these investments is then distributed to the beneficiaries by the trust's terms.
The Settlor
The settlor is the person who creates the trust and funds it with their assets. This can be anyone, from a wealthy individual to a parent setting up a trust for their child.