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What is a Trust Fund?

What is a Trust Fund?

A Trust Fund is a fund encompassing different types of assets, the gains from which are supposed to benefit an organization or individual.

These assets can be real estate, stocks, bonds, mutual funds etc. A Trust Fund is usually established to financially secure an individual or an organization, usually a non-profit one. It is one of the best ways to financially secure the future of a person or an organization.

There are usually three key figures in a Trust Fund,

Grantor – A Grantor is an individual or a group which establishes a Trust Fund. He is the one to secure the financial assets such as cash, private property, bonds etc and thread them together. The grantor is the person answerable for overseeing that the Trust is controlled in the desired manner.

Beneficiary – The individual or organization which reaps the benefits from the Trust Fund is termed as beneficiary. There can be multiple arrangements according to the terms laid down by the grantor through which the beneficiary receives help. Often, the beneficiary is a relative of the grantor, but it can also be an organization.

Trustee – A person or a group which is responsible for managing the fund according to the terms laid down by the grantor is known as Trustee. Some trustees are given great power for managing the fund. They are allowed to make investments on behalf of the funds they manage, other just have to distribute the money according to their instructions. They are usually paid an appropriate fee in exchange for their services.

A Trust Fund is a fund encompassing different types of assets, the gains from which are supposed to benefit an organization or individual.

The Types of Trust Funds

Trust Funds are classified into three different categories according to their use. The factors that differentiate them are the funds’ flexibility, time of creation and the purpose of the trust. The three types are –

Irrevocable Trust – These type of funds remain largely unchanged in their duration. It is often used by people who are concerned about state taxes or want to save the assets from future creditors.

Revocable Trust – These types of funds involve the grantor placing the assets during their lifetime. The assets are only transferred to the beneficiary after his death. It can prove to be a good way to get assets distributed outside the probate.

Charitable Remainder Trust – These funds are designed to award the assets to a specific charitable organization when the fund is dissolved. Apart from providing tax credits to the beneficiary as well as grantor, it also secures a fixed income for the grantor until the trust remains functioning.

Advantages of a Trust Fund

There are some distinct advantages in making use of the trust fund. Some of them are listed below.

Unlike the will, which becomes a public declaration, a Trust Fund maintains privacy. Only the trustees and the beneficiary are informed about it.
The benefits of a Trust Fund can be spread over a large time period. An individual or an organization can ensure regular payment according to the time period set up by the grantor.

Wills are unable to cover things such as life insurance policies or retirement plan, but a trust fund can include them.
Trust funds can also protect the grantor’s assets from the beneficiary.

Although pretty solid funds, Trust Funds are usually subjected to a different, possibly higher tax rate. They can also lead the beneficiaries to not be able to support themselves after a long while of having everything. But overall they can prove to be beneficial for everyone.

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