Trust funds aren’t just for the rich and famous, though they’re often what people think of when they think of wealth. Anyone can have a trust fund, as these estate planning tools provide a useful, efficient, safe way to transfer assets to heirs. In this article, we will go through the top ten trust fund FAQs and their answers.
1. What is a Trust Fund?
In short, a trust fund constitutes an independent legal entity. This entity holds property and assets (land, cash, etc.) for the benefit of a person or organization. Trust funds are often used in estate plans to hold businesses, property, investments, and, of course, money.
2. Who is a Trust Fund For?
A trust fund is for anyone you want to give assets to. Less than two percent of the American population has a trust fund, and the median amount in it is $285,000. This does not mean that people will less money cannot have a trust fund. If you want to transfer your assets to a beneficiary, that is enough to look into a trust fund.
3. What are the Benefits?
Trust funds have various tax benefits, and they can be an invaluable tool, giving you a lot of control over how your assets get distributed. They remain private, and they distribute cash over time. They cover assets that a will might not be able to, such as retirement plans and life insurance policies.
4. What are the Disadvantages?
If you choose a revocable trust, you’ll have more control, but the tax advantages, stamp duty, and estate tax will be far less beneficial. On the flip side, if the trust is irrevocable, you do not have control over the assets that you put into the trust.
5. How Do I Set One Up?
You’ll need an attorney to help you decide how you want to set your trust up. They will help you create the trust document, which will need to be signed and notarized, and set up your trust bank account. Then, you will transfer the assets into the trust and name your trustee and beneficiary.
6. How do Trust Funds Pay Out?
There are several different ways that a trust fund can pay out. They can pay in a lump sum or percentage, or the fund can make incremental payments over time. The distributions can even be made by the trustee’s assessments. Whatever you decide, you have to include this distribution method when you draw up the trust.
7. Who Controls the Trust?
The trustee controls the trust for the beneficiary’s benefit. Sometimes, people choose a bank, lawyer, or financial adviser to serve as trustee, as they know more about investments, money management, and taxes than the average family member. If you have a large trust or one with complicated assets in it, this corporate trustee might be a good idea.
8. What if I Change My Mind?
If the trust is revocable, as the name implies, you can alter it or revoke it at any time. The first step is to remove the assets in the trust. The procedure for trust revocation varies based on where you live.
9. Are These Funds Taxed?
Trust beneficiaries have to pay taxes on distributions from the trust. Taxes differ depending on the type of trust, however.
10. I’m Confused—What Now?
If you’re reading this guide and find yourself confused, don’t worry. Contact a financial adviser or attorney for questions on how to get this process started.
This short guide should set you on the right path to understanding what a trust fund is and how it can help your family. Contact a financial or estate planning attorney to learn more.