What Is a Family Trust, and How Do You Set One Up?

Trust funds are often used to preserve the wealth of the wealthy or provide their heirs (sometimes called “trust fund babies”) with independent incomes. This frees them from the necessity to make a living. Trust funds can be complex and serve different purposes. They may preserve assets for retirement funds, charities, or public works.

Individuals with modest incomes can use trust funds to save assets for specific purposes. Affluent but not necessarily super-rich grandparents or parents may create college trust funds to help pay for their children’s postsecondary education. Widowed or https://www.fututrustee.com divorcing couples can use trust funds to protect their children from potential conflicts.

All trusts have the same structure and terminology regardless of their size or purpose. The terms “trust” or “trust fund” can be interchangeable. They are technically distinct, even though they are closely related.

The legal arrangement of transferring property from a grantor to a trustee for specific purposes is called “trust.” The trustee is responsible for managing the property according to the agreement and in the best interests of the trust’s beneficiaries. The trust fund refers to property the grantor or trustee transferred to the trustee. It is also known as the “corpus” in the trust. Although the term “fund” implies that a trust comprises only financial assets, any type of property, including real estate and patents or copyrights, can be included in a trust fund.

Irrevocable trusts are often used to hold assets for family members, typically children or grandchildren. These trusts can provide estate- and tax-planning benefits. Sometimes, grandparents appoint one parent to be the trustee of a conviction for their grandchildren. A parent is required to follow the trust’s instructions as a trustee. The trustee may have limited discretion in specific actions, but only if the trustee acts in the beneficiaries’ best interests and not for their benefit.

The terms of an arrangement may allow beneficiaries to receive income or assets from the trust funds during their lifetimes and after the grantor’s death. The trustee of college trust funds may be instructed to use trust income to pay tuition costs directly to the school or to reimburse beneficiaries for college living expenses. You might also be able to schedule distributions upon reaching a certain age or after a specific event. The beneficiaries may limit their use of trust distributions to medical expenses or to make a downpayment on a home. Or they can be left up to the beneficiaries to choose.

Trusts are managed and administered by trustees. These trustees can be bank trust departments or individuals. The trust agreement stipulates that trustees are required to follow the directives of grantors. Their responsibilities typically include income collection, asset disposition, replacement, and beneficiary distributions. Distributions can be made on a predetermined monthly, annual, or for specific purposes like tuition and educational expenses.

Trustees receive compensation for their work unless the fees are waived, as is sometimes the case with family trustees. Management of trust assets involves record-keeping, reporting, and legal and tax compliance. A trust with a small number of help and clear instructions usually requires low legal fees and annual expenses. The greater the trust’s terms and acquisitions, the more complex they are, the higher the costs can become significant.

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