It is not uncommon for people to talk to estate planning attorneys about the possibility of creating a trust fund. A lot of people have heard that trust funds can be beneficial, especially if you want to protect inheritances for family members or young children, or even to establish an organization that will donate to charities you want to support. But what is a trust fund? How is it different than a trust? How do you go about establishing or creating a trust fund?
Today we are going to take a brief look at trust funds, what they do, and why they matter.
What is a trust fund?
A trust fund is a trust. The term “trust fund” can be a slightly misleading or confusing term because it adds the term “fund,” instead of referring simply to a trust.
If you have been reading our blog series, or have read any of our posts about trusts, you already know that a trust is a kind of fictitious legal entity that can own property in much the same way that a business or corporation can. The trust exists independently of the people who create it, and the trust can continue to exist even after those people die.
Trusts own property, typically in the form of money or investments. Because this money or property can often be referred to as a “fund,” the trust itself is often referred to as a “trust fund.” In some respects the term “trust fund” is a little redundant, but referring to a trust as a trust fund is fairly common, even amongst attorneys and financial professionals.
What is “funding” a trust?
There are so many types of trusts available today that listing them all would be impractical. But regardless of the kind of trust you create, it’s essential that you fund that trust. The funding process is the process in which you take some of the property that you own and transfer it into the trust’s name. Once successfully transferred, the trust itself becomes the new owner of that property. Again, because the term “trust fund” and the funding process sound very similar, people commonly confuse the terms.
What does a trust fund do?
A trust can be used for many different purposes, but when people refer to a trust fund, they are often referring to a trust that is specifically designed to pass on money or property to others in a regimented, protected manner. It’s common, for example, for grandparents to want to set up a trust fund so that they might pay for their grandchild’s college education.
Setting up a trust fund is not usually a difficult process, but you need to be sure that you are creating the proper kind of trust that is right for your needs and desires. To determine what options are available to you, you should schedule an appointment to come talk to us.