The Basics of a Trust Fund

By James Parker
/
May 12, 2022

The term “trust fund” has an established presence in modern language. It is generally understood as some vault from which the “trust fund child” draws wealth in order to fuel their lifestyle. This accomplishes the goal of painting a stereotypical caricature of a person, but it doesn’t do much to answer the fundamental question: what is a trust fund?

At its core, a trust fund is just another form of trust. A trust is defined as a contractual agreement in which one individual, known as the grantor, awards some amount of property, stocks, assets, cash, or a combination thereof, to a temporary guardian, known as a trustee. The trustee is bound to grow and manage the wealth of the fund until the time comes to pass the trust fund off to the final recipient, known as the beneficiary.

The purposes and function of a trust can vary. For a trust fund, depending on the setup of the fund, there can be a number of benefits including control, management, and tax exemption.

A trust fund often comes from a parent or grandparent who wishes to grant some measure of their wealth to a descendant. The reason to use a trust fund rather than simply giving the descendant that money is to grant the grantor an additional level of control. While personal reasonings can vary greatly, trust funds allow grantors to write in conditions that must be satisfied before the beneficiary can assume control of the trust. These conditions can be as mundane as “the beneficiary must be at least 17 years old” to as specific as “the trust will become available once the beneficiary successfully enters into medical school.” 

In addition, if the grantor creates a revocable trust fund, they have an additional form of control. A revocable trust fund can, as the name suggests, be revoked or altered by the grantor as long as they’re still alive. This allows the grantor to adjust the terms of the trust, right down to who the beneficiary is.

Another benefit of a trust fund is the management of the trust by a trustee. A trustee can be bound to any number of conditions when they agree to accept the role. This can include maintaining a property, growing a stock portfolio, or responsibly managing the funds of a trust fund. A trustee is bound by fiduciary duty, meaning that they must always put the health of the trust fund first and invest responsibly. This active management allows the trust fund to grow as it awaits the day it will be passed on to the beneficiary.

Finally, the most useful part of a trust for a grantor is that if they created an irrevocable trust fund, then they receive a tax exemption on the assets within the trust fund. A trust legally removes the title or ownership of an asset and eventually transfers it to the beneficiary. This means, that any assets that the grantor places in an irrevocable trust, which cannot be altered once penned, are no longer considered the property of the grantor. This can excuse the grantor from property taxes, income taxes, or estate taxes on the assets within the trust depending on how the trust is constructed.

If you are looking to begin your estate planning journey, including establishing a trust fund, you need an experienced trusts & estates attorney. A trusts & estates attorney can consult with you about the best options to create an estate plan and execute them in a way that makes them resistant to challenge from probate courts and specifically tailored to your needs. The best place to find a trusts & estates attorney is at Attorney at Law.

At AAL, our nationwide network of attorneys and law firms allows us to match you with an experienced trusts & estates attorney in your area. Our partners have the resources, legal expertise, and experience necessary to unravel even the most complex trusts & estates cases. 

In addition to resources and experience, our partners also excel in client care. Our partners understand that at the core of a trust & estate case is the loss of life and the desire to see the estate distributed in a way that honors the deceased.

Don’t wait. Contact AAL today for a free, no-obligation consultation and secure your future.

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