What is a Trust Fund?

While many people have heard of a trust fund before few people really understand what they are and how they can benefit you. Here, we aim to solve this problem by providing you with a simple explanation of the ins and outs of trusts funds and why their worth looking into.

The Basics

In its simplest form a trust fund can be described as an asset which is held by a trustee for the eventual benefit of another person or entity. A trust fund is created by a person who is known as the settlor (also called a grantor or donor). The settlor entrusts his assets (usually financially based) to the person or institute of his or her choice, which are then known as the trustee. The trustee’s job is to hold and administer the trust’s assets for the benefit of one or more individuals, which are known as the beneficiaries. The beneficiary of the trust is the one who will receive the assets and is chosen by the settlor.

The trust fund will have a number rules attached to it determining how the money is governed. The trustee has legal title to the trust property but is obliged to administer the trust to the beneficiary in accordance with the terms set out by the settler. Trust funds are also governed by the laws of the country they are held in; in particular, they may be subject to certain taxes.

Who are they designed for?

Trust funds are designed for a large number of people and circumstances, though they are usually used by parents wanting to save for their children or as way to easily transfer your assets when you die. A common use for a trust fund is to provide sustained support for a beneficiary rather than a one off payment at a designated time. This can be particularly useful if you wish to support your child who may not be mature and responsible enough to properly handle large amounts of money.  Trust funds can also be set up for charities or charitable purposes and are normally tax exempt.

What can be held in a Trust Fund?

A trust fund is usually designed to hold money though they can contain all types of assets and other financial instruments such as shares, bonds and property. The settlor can continue to put assets into the trust fund throughout its life allowing its worth to grow over time. A trust fund can either be revocable or irrevocable. A revocable fund means the settlor can take back all the assets should they choose to do so, whereas an irrevocable fund is a permanent agreement, which offers added security to the beneficiary.

Sara Senger is a writer and blogger who contributes to a plethora of sites including Amateur Gastronomy and has written this article on behalf of Ulster Bank, a provider of savings accounts.

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