What Is a Trust Fund?

A trust fund is a group of assets of some kind, usually money or property, that have been placed under the control of an administrator. This is often done in order to keep full control of the money under the care of someone with financial savvy. Sometimes it is done to protect an estate from being plundered by taxes.

Misconceptions

Many people associate trust funds only with the rich who want to provide money for their heirs. However, the reality is that people of all ages and income levels use trust funds to protect their money from mismanagement or from being decreased in value by taxes more than is necessary.

Function

A trust puts money or real estate into the care of a specific legal entity. That entity may be the family that owns the assets in the trust or it may be an attorney who approves expenditures from the trust at the appropriate times. It may also be a couple who holds their money in trust until it can be taken over by other family members. Sometimes people place their assets into a trust because they are too ill to continue overseeing those assets.

Benefits

When a trust is established to benefit family members, the goal is often reduce estate taxes, leaving more money to be inherited by the beneficiaries. In other cases, a trust is established for minors or other people who don't have the financial experience necessary manage their own assets. Trusts also allow someone else to make important financial decisions for the elderly.

Considerations

When a trust is created, there may be a number of legal expenses, including attorney fees for creating the trust. If an administrator will oversee the trust after it is created, there will be additional fees for that service. If a family is the legal entity that oversees the trust, it can create animosity between family members when they must decide together how assets will be allocated.

Potential

If there are few assets that are being considered, a trust fund may not be necessary. It's important to weigh the costs of creating a trust against how much the trust will protect the assets from taxes and mismanagement.