Starting a trust fund

How it works

There are many tools for financial provision available to the public, including retirement savings accounts, stocks, and many mortgage and loan schemes, just to name a few. Each one of these options has its own features and its range of usefulness, so depending on your needs and interest, some would be interesting for you while others would have nothing to offer.

One of the main schemes available for long term financial provision is the trust funds. There are several types of trust funds for a number of purposes, but in essence, they all work the same way, with some particular differences in each case. Many people have heard something about what a trust fund is, altough few can actually say how it works, so first of all, let's clarify the concept by starting from the very beginning: what is a trust fund?

A trust fund is a financial deal made between two or three instances: the grantor, the trustee and the beneficiary. In a trust fund deal, a grantor selects a number of assets, such as money, stocks, properties and others of the like, and establishes that they will be available in the future for the benefit of the beneficiary - who can be one or more people - at a certain point in time. In some cases there is a trustee, who is the person - often a family member or a professional service provider - who will take charge of the assets, managing them and taking care of them the way the grantor has established. In some cases, the grantor also plays the part of the trustee. The grantor can decide how the process is going to go, including which beneficiary gets which assets, how they are distributed, at what rate they can access the value of the assets - a monthly income, a lump sum, etc. - and any other relevant aspect of the trust fund.

How to start a trust fund

You should ask for professional advice before starting a trust fund, just as it happens with any other financial arrangement. Trust funds are useful for a number of purposes, but not all schemes will work for every occasion. Before you make a deal with anyone, get properly advised and make all questions you feel necessary. For example, if you want to open a trust fund with your sons or grandsons as beneficiaries, you should read about the regulations for childs trust funds, that have changed in the past few years. A charity trust fund will work in a different way; for example, many of them are tax deductible, which cannot be said about trust funds with your own family members as beneficiaries.

When you start a trust fund, take your time to make all specifications you believe to be necessary, taking advantage of all the control a trust fund can give you over the way your inheritance is passed on and managed until then. If you are setting up a life trust fund, you might want to consider choosing a trustee who will take care of the fund until the date it is paid off, in case you become sick, incapacitated, or even die. This will help you avoid legal issues and contestations later.

Advantages of trust funds

Many trust funds are presented as an option to a standard will. However, depending on the case, a trust fund might be more convenient for you, so it is worth considering, at the very least. 

When compared to wills, trust funds allow the grantor much more control over who gets what and how it's used. Thanks to their level of detail and their legal status, trust funds are much more difficult to contest than wills. Not impossible, but much more difficult. Also, a trust fund allows heir to get their hands on its assets much more quickly. Trust funds allow to avoid probate, which is the legal process that grants a will its proper legal validation. Probates can take up to two years, and there are fees and taxes involved. Also, the whole process stays in the public record, so when you receive your inheritance through a trust fund instead of a wil, your personal information is safe since it is kept private.

As you can see, there are many different advantages about trust funds over wills, but not in all cases they are clearly better. You should get professional advice on your case and ask all questions to make sure you are making the right choice. A trust fund can be useful for a number of purposes, so consider it and weigh its advantages.

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