It is a misconception that trust funds are only associated with wealthy individuals and institutions. However in reality trust funds can be used as a separate financial tool under many circumstances.

A trust fund is a separate legal entity that is created for a specific financial purpose. It holds property and other assets of some kind for the benefit of a particular designated individual, family, group of people, or an organization.

About trust funds:

The person originally creating the trust is called the grantor, settlor, creator or the donor. The general formation, administration and management of the trust is entrusted to a private professional management, a individual or designated corporate body who overlook the management of the assets in the trust. Such a person managing the assets of the trust funds is called the trustee. A donor can assign more than one trustee to a particular trust fund depending on the competence levels. A trust comes in to existence when the donor and the trustee sign a written instrument called the trust document or the trust deed. The last will and testaments of the settlor also are legal forms of creation of trust.

A professionally managed corporate trustee

provides greater risk security, professional advice, permanence, impartiality and better management of the trust. On the other hand an individual trustee may provide a more personal touch, be more flexible in management but may die and leave the trust in between. The choice of the trustee depends on the kind of trust created and the beneficiaries involved.

It is the legal binding duty on the trustee to manage the assets in the best interests of the beneficiary. The trustee needs to be competent enough to allocate assets in to various investment classes depending on the stated investment objectives. The trustee is paid fees depending on the agreement, as he is the custodian and manager of the assets in the trust.

A trust funds manager is a supervisor or a professional investment consultant who trades investments from the pool of assets held in the trust based on the specific financial objectives set out in the trust deed.

The Fund start up:

The creation of a trust fund can be for wide variety of reasons depending on individual circumstances. Some of the most common reasons for the formation of a trust are to provide for management of personal assets in the eventuality that the owner himself may not be able to manage them, to provide for minor children or family members who lack the financial experience and expertise to mange the assets themselves, to reduce estate taxes or to provide liquid assets to help pay for them, to avoid probate and facilitate immediate easy transfer of assets to the successor or the beneficiary of the trust.

Trust funds can be either after death trust or living trust. Incase of an after death trust, the trust starts only after the death of the owner of the asset and is supported by a will. After the death of the creator of the trust the assets are transferred to the trust for the benefit of the beneficiary. The ownership of the assets is retained with the trust. It is transferred to the beneficiary after he attains a designated age or fulfills certain conditions as per the will. Such a trust funds is also called testamentary trust.

Incase of living trust, the trust funds is created during the life of the donor or creator. The assets transferred to the trust fund, but the ownership still remains with the donor. The benefits in the form of earnings go to the beneficiary. Such a trust created when the settlor is living is called an inter vivos trust.

A living trust:

A living trust can be a revocable or an irrevocable trust. The creation of each type of trust depends on various benefits like tax incentives, legal benefits, etc. Incase of revocable trusts, which are most popular, the settlor can anytime during his life change the terms of the trust. He can change the beneficiary, the assets involved, the management and other conditions of the trust deed. However revocable trusts dont provide shelter from federal and state taxes and are subject to a lengthy probate process. On the other hand irrevocable trusts offer federal and state tax incentives and is often crated by individuals holding large estates that can reduce estate taxes and also avoid probate. However in a living irrevocable trust the ownership is transferred to the trustee. Incase the settlor names himself as the trustee or the beneficiary he tax benefits may be gone.

In United States of America a popular trust called protective trust is often created to avoid creditors claims against the trust. In such trusts the settlor intends to transfer his assets to the beneficiary but is worried about the creditors claims against such assets which would leaves nothing with the beneficiary. To avoid such a situation a protective trust can be created where both the settlor and the beneficiary becomes the beneficiaries of the trust till the settlors death after which the entire benefits go to the beneficiary. The creditors have no claims on such assets provided that the liability arose after the trust was created.

The other Funds:

Various types of trusts can be created depending on the specific motives to be satisfied. A spendthrift trust can be created if the donor believes that the beneficiary is too young and lacks the financial expertise to manage the assets now. The beneficiary receives small amounts at periodic intervals from the trust. A bypass trust allows a married couple to reduce estate taxes by transferring their assets to a trust. In such cases, after the death of the spouse the income from the assets comes to the surviving spouse till he/she dies. After his/her death the balance assets in the trust automatically get transferred to their children or other designated beneficiaries. The major advantage of such a trust is that the spouse can avail of the unified credit provided under Gift and Estate Tax Law.

A charitable trust can also be created wherein the donor usually transfers his real estate, art and other assets to the trust for charitable purposes. The donor or the settlor can enjoy the tax benefits and other income arising out of such assets till he survives and after his death the assets gets transferred to the trust who uses it for charitable purposes.

Social Security Trust Fund is a statutory federal government fund created to provide benefits to the retired, disabled workers and their survivors. The current working employees pay periodic contributions to the fund, which are invested in government securities and used to pay retired and disabled citizens.