A trust fund is a legal establishment that manages and stores assets on behalf of another person. It is composed of a trustee, a beneficiary and a grantor. Each of these plays a vital role in the establishment of a fund. To put it simply, the grantor decides on criteria of when their assets and property will be distributed to the beneficiary (the grantor’s family or friends), and the trustee (the trust fund organization) does the job for them.
A trust fund is a smart investment as it helps provide control to someone over the management of their property and wealth-even after they pass away. While trust fund companies often get a bad reputation (most view it as something only wealthy families invest in), they are actually a great way of managing one’s assets. However, it does have some drawbacks as well.
If you’re someone who is considering setting up a trust fund, the following layout may provide great help.
What are the Pros of Setting up A Trust Fund?
Let’s start with the benefits of setting up a trust fund before we move on to the cons.
- It Secures Your Beneficiary’s Future until They Reach Age
If you have children that are young and unable to manage their own finances, you can set up a trust fund to manage their education and living costs in your absence. The trust fund will ensure that the child’s needs are being met and will also oblige any specific criteria you have set. For example, if you do not want your children to manage any assets until they are at least 18, the trust fund will make sure that they pay all of their expenses. When they come of age and learn how to be responsible, they can receive their assets. It will ensure the child’s successful future and keep them away from dangerous habits.
If, as a worried parent, you are confused about how to create a trust fund for your child, browse the link to check out the step-by-step procedure that will help you understand the process.
- Helps In Avoiding Probate Court:
Probate is a process that the court uses to equally divide your assets between your family and friends according to the law of your respective country. It is an expensive and long procedure. Your family will have to pay all of the attorneys involved in each individual court session. In a simple case, it can take an average of 5 months. A more complicated case with contestants such as ex-spouses involved might take up to a few years. If you own property in different places, there might be multiple probates that will take place in different places with different laws. Especially when you are grieving, it will be a burden to your friends and family to deal with this complicated and hefty process. A trust fund helps you avoid this long process and ensures a smooth inheritance.
- Prevents Getting a Conservatorship
Conservatorship is the process by which the court appoints a suitable person to manage the assets and properties of another adult who is unable to do so for himself. The chosen person (the conservator) is usually a close relative of the sick adult (the conservatee) and is also allowed to manage any personal decisions for them.
Conservatorships are usually not a good idea due to the amount of abuse that the conservatee goes through as they are incapable of making their own decisions. By setting up an individual trust, a successor trustee (decided by the grantor) will be allowed to gain all access to their finances. For example, if one member of a married couple becomes incapacitated, the other will immediately inherit the money.
What are the Cons of Setting up A Trust Fund?
The list of cons for setting up a trust may not be a long one; however, it will help you gain all the insights to make the right decision.
- They Are Expensive
One of the biggest drawbacks of setting up a trust fund is the amount of money that goes into it. The attorneys in charge of your trust fund usually work with financial planners and banks who may charge hundreds of dollars per hour.
At the time of death, if an individual has any residual assets that aren’t part of the trust and there is no will, these assets will be distributed according to the laws of the country. They will have to pay extra to create a “pour-over will” to ensure all residual assets go directly to the trust. In addition, the trustee would want to be compensated for their time and effort. Any necessary changes or retitles will also cost extra money. All this is considerably more expensive than probate court.
- Requires a Lot of Paperwork and Details
While setting up a trust, there may be a lot of paperwork involved. For the trust to be effective, you have to make sure to transfer all ownership of any properties to the trust company. If the asset has a title, you must change it to show that it belongs to the trust. If you fail to grant ownership of any asset to the trust, it will be dissolved by the law.
A trust is also more complex than a will. While a will would dispose of particular items to different individuals, a trust fund will give the grantor discretion for when funds should be taken and given to the beneficiary. Moreover, the grantor will have to register for a trust checking account.
Despite the fact that trust funds are a great way to ensure your finances are properly managed, they may not be the best option for everyone. Hence, one should conduct a careful assessment of the individual pros and cons before finalizing their decision. For better results, consult a professional and know the best course to take.