Trust funds are a vehicle that people use either to ensure the welfare of future generations or for tax planning objectives. A trust is a legal arrangement in which the person setting up a trust, who is called a trustor, makes an arrangement with a group of people known as the trustees. The trustees are made legal owners of the assets (money, property, bonds, stocks, etc.) of the settlor for the benefit of another person or group of people known as the beneficiaries. In this arrangement, the assets are held in a trust for a set period of time or until the beneficiary reaches a certain age, or a specific event occurs.
A trust can be set up with anything you own. You can place real state, cash, stock, bonds or any other valuable assets into your trust; however, funding a trust can be expensive due to attorney fees. It´s important to place the right asset into your trust to make it tax-deductible. The types of assets people most commonly put into trusts include real state, such as a home, but it can also be a hotel, building, etc., money and shares, life insurance and personal property, such as personal items of high value and antiques.
A trust is usually set up to protect your family finances, to reduce tax related obligations and to ensure the welfare of your family after you die; however, a trust can also be set up while you´re still alive. The advantages of having an active trust while you´re alive include that you can become a trustee yourself maintaining control of how the trust is handled. Trusts funds usually involve money or property being kept by the trustees, with the income generated from those assets being handed out to the beneficiary or beneficiaries.
The trustees have to look after the trust fund. They have duties and obligations; they have to act in a fair manner. Their job is to look after the assets for the benefit of a particular class of people (beneficiaries). The trustor and the trustee usually designate who the beneficiaries are going to be in the trust deed. The trustee´s job is to act evenly so as to provide equal assistance to the beneficiaries. Once you place an asset into trust, that asset is no longer yours, but it belongs entirely to the beneficiary.
While you´re up and running, you can either set up a revocable or irrevocable trust. An irrevocable trust is no longer yours. The assets you placed under irrevocable trusts are under the care of the trustee. You don´t have to pay money or income tax originated from the assets. Tax exemptions are the principal reason people set up irrevocable trust. Under an irrevocable trust, you are able to take control of your asset. A revocable trust is convenient when under special circumstances you want to get money out of your trust to fulfill a family requirement.
Most people think of setting up a trust to protect their loved ones. It´s important to match up the type of assets you´re going to place into a trust fund that corresponds with the needs of the beneficiary. If you think the beneficiary will need money in the future, you can leave a capital asset, such as land or the family home and have the trustee sell it to provide an income for the beneficiary; however, the transaction might entail costs and extra fees for the trustee.
Setting up a trusts and managing it can cost money. First, you need to pay for the advice of an attorney and for the drawing up of the trust deeds. Next, the more elaborated the trust deeds, the pricier the trust. Other costs included in the setting up of a trust fund might include estimating the value of the asset to be placed in the trust and related transferring costs of ownership. Once the trust has been established, there might be additional legal fees and trustees ‘daily expenses.