A trust fund is an estate planning tool not only meant for the wealthy. A person, or grantor, sets up an account containing assets for a beneficiary. The grantor decides how the assets get distributed eventually. The Trustee manages the assets. Depending on the type of trust fund, the beneficiary will be able to access the funds according to the grantor’s provisions. For example, a beneficiary may receive access to half of their trust fund when they reach the age of majority and then receive the remaining sum at a later age. A trust fund can ensure that your beneficiary is taken care of over the course of their lifetime.
When estate planning with your lawyer, it is important to understand the types of trusts available as they each serve a different purpose and should be specific for the person or entity who will receive it. These are the main types of trusts:
- Revocable Trust. A revocable trust can be modified or terminated at any time during the grantor’s life without the permission of the beneficiary. The assets are considered to belong to the Grantor.
- Irrevocable Trust. In an irrevocable trust, a grantor gives up their rights to modify the trust once it’s created. The Grantor cannot take the money back to himself.
- Special Needs Trust. This trust is set up for a beneficiary who has a disability. The fund is set up to provide financial assistance for any purpose related to their care.
- Charitable Trust. A charitable trust includes funds that get released to charities of the grantor’s choice over a specific period, after which the remaining amount goes to their beneficiaries.
Why Set Up A Trust Fund?
- Minor Children
Assets for a minor should always be left through a trust. This ensures that the minor children will have money available to support their live in the event that you pass away and that the money will be managed for them by someone that you trust (Trustee of your choosing). Rather than the funds being released all at once at 18, they can be distributed to your child in stages. For example, a common arrangement is for the child to receive a portion of the funds at 25, half of the funds at 30, and the remaining at the age of 35.
2. Adult Children
A trust can protect adult children from their own creditors or divorcing spouses. Since a trust is a separate entity from one’s own assets, it provides better liability protection. Once the money is withdrawn into a bank account, it is subject to being claimed by creditors or a divorcing spouse.
3. Problem Children
A trust can protect a child from themselves, especially if they have issues with gambling or substance abuse. It is best to protect their money in a trust rather than immediately distributing it to them in one large lump sum.
4. Provide for Contingencies and Ease of Administration
A trust fund can help avoid probate, which is a court process that can take years. Rather than going through a probate court like a Will, a trust and its contained assets are distributed directly to beneficiaries based on the trust’s provisions. If there are multiple beneficiaries in other countries, it simplifies the process for distribution. Additionally, a trust can also provide for contingencies when the beneficiary passes away before the grantor, allowing for the funds to be passed on to another beneficiary. In short, a trust can save your beneficiaries on costs and time by not having to go through probate.
It’s important to ensure that the trust fund for your child is set up correctly. If you are uncertain about which trust fund is best suited for your child, you can consult a lawyer to provide you with guidance. Sverdlov Law is a team of estate-planning experts who can advise you on important factoring relating to setting up a trust properly, such as selecting the correct trustee for your fund and ensuring that the trust is properly funded. Sverdlov Law can help you prepare for your child’s future.
If you would like to discuss the next steps of your planning process and how to ensure that your Trust is drafted in a proper way to satisfy your needs, please call us at 212-709-8112 or book a consultation HERE
Katya Sverdlov, CFA, Esq.
Sverdlov Law PLLC
30 Wall Street, 8th Floor
New York NY 10005
212-709-8112 – phone
718-228-5007 – fax