The Purpose and Main Benefits of Establishing a Trust Fund
Trust funds are not, as many people tend to believe, the sole province of the multimillionaire. However, despite their many potential benefits, they are not a suitable financial instrument for everyone’s purpose. In essence, the term applies to a legal document or deed that may be established by either an individual or a corporation, thereafter known as the grantor. The deed sets out the terms for the management of property and other assets held on behalf of a beneficiary that, once again, may either be a named individual or a group such as a charity. The person or persons to whom the task of management is then assigned are known as the trustees and may be the grantor, a close friend, a family member or a legal or financial professional.
The main purpose of a trust fund is asset protection and to provide assurance that property, money and other assets it includes are allocated in accordance with the grantor’s wishes in the event of their demise. A task for the trustees, it serves to avoid unnecessary pressure on the bereaved family members, saving them time, expense and the often-confusing paperwork that are involved when filing probate.
Aside from relieving the bereaved family of burdensome legal requirements, there are many other benefits to be gained when choosing this route rather than simply compiling a last will and testament and appointing an executor. A will is simply a means to clarify ones’ wishes regarding the distribution of one’s assets but it offers no means by which to protect those assets. In practice, the proceeds of a will remain vulnerable to excessive administration fees, estate duty, spouses and creditors, vulnerabilities against which the assets held in trust funds are far better protected.
For instance, assets that are held in this way are no longer considered part of an estate. As such, they will be exempt from death duties. By contrast, those that remain part of a deceased estate will continue to be subject to this form of taxation.
One of the other major benefits of these instruments is that they can serve to protect the long-term financial security of a minor beneficiary. Rather than bequeathing a substantial sum of cash to a minor who may have little experience of managing their finances and could quickly deplete an inheritance with little to show for it, a trust can be designed to manage inherited funds on behalf of the beneficiary. For instance, it could provide a modest monthly income and perhaps release additional sums on designated milestone occasions and at the discretion of the trustees, while continuing to maintain growth of the remaining cash through investment.
Clearly, if handled correctly, there can be many advantages in adopting this more secure alternative to a simple will, given the various shortfalls mentioned. It makes sense, therefore, to seek professional help to ensure that any financial instrument you may create actually meets your purpose and extends the maximum benefit to those for whom you wish to make the best possible provision.
Secure Legacy is a firm of legal and financial specialists with extensive experience in the fields of deceased estates, executorship and trust funds.