For most people, the only time they’ve heard about trust funds is when the word “baby” is attached to it, as in “he is a trust fund baby.” But the fact is that there are a variety of trust funds available to you no matter the value of the asset you’re trying to protect.
What is a trust fund?
A trust fund is a way to reserve or protect a sum of money or property for the benefit of another. With the right planning and assistance of an attorney, the items or sums you donate to the trust may not be taxed as personal income.
Even if you don’t consider yourself a wealthy person, a trust fund can be established to protect anything you deem valuable. A trust fund may include anything from a personal collection of firearms or jewelry to a piece of land or a sum of cash, depending on the type of trust fund and the person establishing it.
The basic appeal of a trust fund is that once you donate to it, those items will be protected according to your own specifications. You make the rules, and you choose the beneficiary.
Can’t I just designate all of that in a will?
The difference between a will and a trust is that a will is activated only when you die. A trust can be effective as soon as you establish it and designate a beneficiary. Also, a will applies to all of your assets, whereas a trust only applies to the items or sums that you contribute to it.
So, for example, if you decide you want to designate that your grandchild receives a particular sum of money each year until she reaches a certain age, you can establish a trust and make her the beneficiary. No one else may have a claim to that money, and it can take effect at any point in time that you want it to.
Also, a trust can remain private. It does not need to go through the probate process that a will is subjected to, which means that you can avoid a public record and the time and money of the court costs for the probate process.
There are many different kinds of trusts and there are benefits and drawbacks to all of them. To protect yourself and your assets, financial advisors recommend working with an attorney who specializes in estates and trusts.