Benefits of establishing a trust fund

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Benefits of establishing a trust fund

June 6, 2005 10:25 PM EST | Consumer Info , Investment | Email to Friend | Comments (0)

People often associate trust funds only with the wealthy. But a trust fund ("trust") actually can be an effective financial tool for many people in many circumstances.

A trust is a separate legal entity that holds property or assets of some kind for the benefit of a specific person, group of people or organization known as the beneficiary (beneficiaries). The person creating a trust is called the grantor, donor or settlor. When a trust is established, an individual or corporate entity is designated to oversee or manage the assets in the trust. This individual or entity is called a trustee. A trustee can be a professional with financial knowledge, a relative or loyal friend or a corporation. There are pluses and minuses to each type of trustee. An individual trustee may provide a more personal touch, but may die or move away. A corporate trustee may be less personal but provides experience, investment skills, permanence and impartiality. More than one trustee can be named by the grantor if he or she wishes.

Grandparents can establish a trust to help pay for a grandchild's college education, and $10,000 per grandparent can be placed gift-tax-free in each grandchild's trust per year.

Benefits of Establishing a Trust

Whether it makes sense to establish a trust depends on your individual circumstances. Some common reasons for setting up a trust include:

To provide for minor children or family members who lack financial experience or who are unable to manage their assets

To provide for management of your assets should you become unable to oversee them yourself

To avoid probate and transfer your assets immediately to your beneficiaries upon death

To reduce estate taxes or provide liquid assets to help pay for them.

Keep in mind that you may not need to establish a trust to accomplish these and other financial goals. A well-written will may distribute your assets appropriately. Check with a lawyer before deciding if a trust is right for you.