What Is a Trust Industry?
When a person dies, the assets from his estate are required to be distributed to his heirs. Without proper planning, he will be unable to control this distribution. Trust funds are estate planning tools used to control a person's estate. The trust industry is made up of legal and investment experts who specialize in creating and monitoring trusts funds.
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Trust Industry
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The trust industry is responsible for creating and managing trust funds. Banks make up a significant portion of this industry with their trust departments. Law firms that specialize in estate planning are also part of the trust industry. Companies in the trust industry work with clients to set up the legal framework to create trusts, determine the payout plan for each trust, and monitor the investments inside each trust fund.
How a Trust Works
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There are three roles involved in a trust fund: the grantor, the beneficiary and the trustee. The grantor creates a trust by depositing assets into the trust fund and establishing its payout schedule. The beneficiary receives the payments from the trust according to its payout schedule. The trustee is in charge of investing the assets in the trust and making sure the trust distributions are made according to the grantor's plan. Companies in the trust industry are usually the trustees of trust funds.
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Types of Trusts
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Trusts are categorized as either simple or complex trusts. Simple trusts are not allowed to accumulate investment earnings. All investment gains must be distributed to the beneficiaries in the year they are earned. The investment income is never taxed to the simple trust as it is all distributed. Complex trusts are allowed to retain earnings according to the grantor's instructions. Investment income that is retained in the trust is taxed as income. The complex trust will need to file an income tax return that year.
Use of Trusts
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The main use of trusts is for estate planning. Trust funds allow a person to control her assets even after her death. Common uses of trusts would be to provide for a special needs child or to prevent an heir with drug problems from inheriting a lump-sum payment. Gifting assets to a trust can also reduce future payments of estate taxes. The trust industry advises clients on the uses of trust funds.
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