Trust Funds: What they are, how they work and types of trusts

Authors:

James Olaitan

January 18, 2022 12:33 PM

What are trust funds?

Trust Funds: What they are, how they work and types of trusts

Trust funds are legal entities in which property and cash are held by one person or group (the trustee) for the benefit of another person or group, usually called the beneficiary. Trusts can be established during someone's lifetime, as well as after their death.

How do trust funds work?

The trustee is saddled with investing the trust fund's assets and managing them on behalf of the beneficiary. Income generated by the investments is used in catering for things like education, healthcare, shelter, or basic living expenses.

Parties involved in establishing a trust fund

The following are the parties involved in establishing a trust fund:

The grantor

This is the person who creates the trust and transfers assets to it.

The trustee

This is the person or entity responsible for managing the trust fund's assets.

The beneficiary

This is the person or group of people who will benefit from the trust fund.

Revocable Trust fund versus Irrevocable trust fund

Trust funds can be classified into two categories: revocable and irrevocable. With a revocable trust, the trustee can change the beneficiary or terminate the trust at any time. On the other hand, one cannot change an irrevocable trust without all parties' consent.

What are some types of trusts?

There are many different trusts types, but some common examples include:

- testamentary trusts, which are established in a will and take effect after the creator's death

- living trusts, which are set up during someone's lifetime and can be revocable or irrevocable

- charitable trusts, which donate money or property to charity

- family trust funds, which allow a group of people to share assets and income

- special needs trusts, which provide financial assistance to people with disabilities

- retirement trusts, which help people save for retirement

Trust funds are a great way to provide financial security for yourself or your loved ones. If you're interested in establishing one, it's essential to consult with an experienced attorney who can assist in choosing the right type of trust and manage it effectively.

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