Trust Funds Not Only for the Rich: What You Need To Know

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A Trust Fund Doesn’t Have To Be Overwhelming.

While the words “trust fund” might conjure up a misbehaving celebrity, using trusts wisely can be a wealth-building tool for people at all income levels. Especially those with kids. Here’s what you should know about them.

What’s a Trust?

A trust is a legal entity that one person, called a grantor or settlor, creates to hold property, stocks, cash, etc. for someone else, an individual or organization called the beneficiary.

Trustees are the people (or sometimes corporations) put in charge of overseeing the trust. Often the trustee is a financial professional, friend or family member. Increasingly, they receive annual compensation for administering the trust.

Not Just for Rich People

A trust provides peace of mind for many grantors, who know that their estates will be managed how they want and relatives won’t be squabbling over the fine china. While the grantor is living, trusts can provide substantial estate, gift, and income tax breaks. They’re not just for rich people, either. People of all income levels might set one up to provide for the management of their finances in case they become disabled or otherwise unable to handle them, or to provide for young/disabled/shopaholic loved ones who can’t manage their money. Trusts also help everyone involved skip probate court when sorting out even modest estates after death.

For Life and Death

There are two types of trusts: after-death and living. An after-death trust usually comes into existence through a will. An example would be a parent stipulating in her will that her valuable art collection should go into a trust, administered by a trustee, until her underage daughter reaches 18, 21, or another specified age and can take control of the assets. A living trust can be as simple as a still-living mother establishing a trust for her daughter, and naming herself the trustee and herself and her child as the beneficiaries. The mother still owns the property or holds the assets, but the daughter can get some of the income they produce and will receive it all upon her mother’s death.

Which Trust Is For Me?

There are several kinds of trusts. Pensions, for example, are basically trusts set up between a settlor employer and an employee beneficiary. Some of the more common include:

1. A spendthrift trust, which doles out cash at specified intervals to the grantor’s child or other beneficiary. That way, the recipient can’t squander the money all at once.
Good candidates: Every child of a B-list celebrity, everyone on Jersey Shore.

2. A charitable trust, which allows the grantor to make donations and get tax savings at the same time. Put a piece of art in this trust and it will stay in your property until it is transferred to the charity of your choice upon your death.
Good candidates: Donald Trump, everyone with a Honus Wagner rookie card.

3. A Section 2503 trust, which allows assets to be used on behalf of the minor beneficiary, at the trustee’s discretion, until she’s of age to collect it all.
Good candidates: Knox, Vivienne, Shiloh, Zahara, Pax, and Maddox Jolie-Pitt.

Ready to start a trust? Find a local attorney who specializes in estate planning and—forgive us—trust her to explain more.

Tell us in the comments: Would you consider starting a trust for your own children, or does it still feel out of reach?

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  • Anonymous

    Love this piece! Josie, you are terrific. The Honus Wagner rookie card reference was brilliant. I may be the only one who loved that Matthew Modine/Kristin Davis tribute, but I’ll cop to it. As for trusts, I’d go with the spendthrift trust. However, I’d want a guardian involved. nnReaders, what do you think?nCheers,nCarolinenLearnVest’s Chief Content & Community Officer

  • Juno

    This is a really smart, educational piece. I don’t know why you have to reference celebrities, as though he wouldn’t get it otherwise. I’m so tired of everything I read about mentioning the Jersey Shore. Enough already. The antics in the White House are bad enough without having to have celebrity nonsense thrown in there, too.

    • Snowboat

      I agree with you. Sites today have waaaay too much about Angelina and Snooki.The world would be a better place if the whole lot of them just took a rest. thank you very much

  • Guest

    Trust funds are great but more often than not I’ve seen the recipients of those turn out to be less than successful adults. They never fully develop from children because they always have this safety net. I’d argue that we are doing our children more harm than good with trust funds.

  • Guest

    Trust funds are great but more often than not I’ve seen the recipients of those turn out to be less than successful adults. They never fully develop from children because they always have this safety net. I’d argue that we are doing our children more harm than good with trust funds.

  • drummermurph

    My Grandfather set up a trust for me and my cousin, both only childs. His young wife was suppose to get the dividends and interest until she died then we got the 5 mil between us. The idiot trust officer at the bank where it was set up never read the will! He thought it was suppose to be dispersed to the young wife by the time she died. Moral of the story: Keep a close eye on the trust until you get it. Ruined my life. If I had only known it wouldn’t be there I wouldn’t have counted on it. Unfortunately the bank was off the hook because of a clause in the will that said the bank could get into the principal if they thought the wife needed it. When she died her estate was worth 4 mil which she gave to her family, not where my Grandfather wanted his money to go.