TRUST FUNDS INFORMATION - USA

What is a Trust Fund?

A trust fund is a place where a pool of assets (such as property or cash) can be held for the benefit of a person, group of people or organisation. Often confused as something which is exclusively for wealthy people, a trust fund can be an effective way to provide money for others or to manage money for yourself. The person or group which benefits from a trust fund are known as the beneficiary (or beneficiaries), while the person who creates the trust can be called a grantor or donor.

When a trust is opened, either a corporate or individual entity is given the management of it. They are then known as the trustee. They do not have to be a financial specialist – they can also be a relative, friend or a company.

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Why Set up a Trust Fund?

There are various reasons why someone might choose to set up a trust fund. Here are some reasons why many people set one up:

  • To provide financial support for children or family members
  • To provide management of your assets in case you are unable to manage them yourself
  • To provide liquid assets to help pay for taxes (or to reduce estate tax)
  • To immediately transfer assets to your beneficiaries in case of death

Before you set up a trust, speak to an independent financial adviser or lawyer. After all, you might be able to manage some of the above actions via other avenues.

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How do you Set up a Trust?

In order to set up a trust fund, you can go via an insurance company, financial adviser or financial service offering trust fund services.

You will need to set out a document which states your beneficiaries, trustee (or trustees) and what they may do. You will also need to specify your wishes for the trust. Once the document is finalised you can transfer the assets to the trust. If your assets include property, note that you may incur transfer taxes and other fees – find out what these are in advance.

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What types of Trust Fund are there?

There are two types of trust fund – the living trust or the after-death trust.

A living trust is made while the donor is still alive. He or she can make changes to the trust fund during his or her life as long as it is a revocable trust. If it is an irrevocable trust, the assets are handed to a trustee – assets cannot be removed or changed. This option is often selected by people with a large estate.

An after-death trust comes into existence after a person’s death (usually via a will). In some US states, after-death trusts may be supervised by court even after the estate is closed.

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