Putting money into a trust is a great way to pass ownership to someone in a structured manner, where you can impose rules. For instance, you can specify that the beneficiary cannot use the funds to pay off debt. Or, you can set a minimum age for the beneficiary to gain control of the money. A trust fund is a legal entity that holds property or assets on behalf of another person, group or organization.
It is an estate planning tool that holds your assets in a trust managed by a third party or neutral trustee. A trust fund can include money, property, stocks, a business, or a combination of these. The trustee retains the trust fund until it is time to transfer the assets to the chosen beneficiaries. Your beneficiaries do not own your trust assets until they are distributed.
The trust is its own entity. This means that if your beneficiary has financial problems, the trust money is safe. Let's say Bill has more issues than just an inclination to visit casinos too often. A year after Jane dies and Bill inherits his estate, he is sued by his business partner.
That business partner could try to pursue all of Bill's finances, including what he inherited from Jane. The same could happen if Bill gets divorced or files for bankruptcy. By keeping your money in a trust, your beneficiary's creditors cannot access it. Trust funds are legal agreements that allow individuals to place assets in a special account to benefit another person or entity. Trust funds can be complex and often require the assistance of a lawyer to set them up, although there are online tools for those who want to do it themselves.
The different types of trusts available include testamentary trusts (which are based on a will), living trusts, revocable trusts, or irrevocable trusts. Wills can be created online or with the help of a lawyer. If the beneficiary is young or has difficulty managing money, a discretionary trust is often created. Certain types of irrevocable trusts can help you avoid costly estate taxes, which can eliminate a large portion of the legacy you want to leave to your children if your estate is worth enough money. For example, you can specify that trust money should only be given to your grandchildren once they turn 18 and only be used for college tuition.
Or you may decide to limit the amount of money a beneficiary can receive from the trust each year if they need extra help managing it. The type of trust and the trust documents stipulate exactly how and to whom your assets will be distributed, whether in the form of annual income paid to you or your beneficiaries, money or property that will be transferred to your heirs or donations to charities upon your death. Trust funds were once associated with high-net-worth individuals as a way to pass money to their heirs or charitable organizations. Since the person has died, the trustee acts as his substitute and pays taxes with the trust money. For the trust to be effective in distributing assets after death, money and other assets must first be transferred to the trust.
In most cases, any interest earned on money within a Trust Fund will also be distributed to the beneficiary. A baby trust is someone who will receive money or assets from a trust when they reach a certain age. And if you want to make sure you have something to leave your children, consider creating a Money Club in your area. If a trust pays out part of its assets as income, or holds assets that appreciate or generate interest income such as real estate or stocks, then the person receiving the money must pay income taxes. You will find trust funds useful if you want to leave money, property or other assets to another person and ensure their use in a specific or indisputable way. So even if your grandson gambles all his money and incurs huge debts, his creditors cannot touch his trust fund.