Setting up a trust fund is beneficial to both the recipient of the trust or the beneficiary, as well as the creator of the trust or the trustor. For beneficiaries, a trust fund account ensures that there is money put aside for their current needs or for future use. For trustors, establishing a trust fund is like putting up a tax-free gift which thus allows them to enjoy certain tax benefits. This article provides an interesting insight into the benefits of setting up a trust fund.
What is a trust fund?
Trustee Another party that is involved in trust fund management is the trustee who is the individual assigned by the trustor or the government in some cases to ensure that all conditions for the trust are upheld. A trust fund works like an inheritance or investment that is managed by an assigned person for the benefit of another party. A baby savings account can be made into a trust fund but this may involve having the trustee invest the money from the account in different projects that he or she believes would generate income and therefore increase the value of the trust fund.
The many types of trusts
A children trust fund is not the only type of trust fund available for their use. For that matter, neither is a family trust fund or anything that has a family member as a recipient the only type of trust fund that an individual can put up. Trust funds may also be made up for the benefit of retired workers or even for the elderly. In many cases, child trust funds are set up to provide a sustainable source of income for mentally challenged or handicapped individuals who are unable to care for themselves or who are made dependent on other people due to their medical condition. Section 2503(b) Trust This requires annual distribution of income for the beneficiary until he or she reaches adulthood. The fund generated by the trust does not, however, need to be something that the beneficiary should literally hold on to. Rather, the funds may then be transferred into a custodial account if the child is still too young to manage his or her own money, or if the sum is deemed too great for the beneficiary to handle at his or her age. Section 2503 Trust The funds coming from the principal and income of the trust must be used for the beneficiary until the child is 21 years of age. By that time, any money remaining in the trust will be paid to the beneficiary who has the option to continue the trust if desired.