You Don’t Need to Be Rich to Have a Trust Fund

“Trust fund recipient” might conjure up the image of a spoiled, jobless millionaire zipping from ski resorts to Cabo on a whim. While that image has been popularized by television and film, trust funds aren’t just for the super-wealthy. Anyone can put together a trust fund to protect their assets — in fact, everyone who is hoping to take care of their loved ones should consider if a trust fund is right for them.

How Is a Trust Fund Different From a Will?

Both trust funds and wills designate assets from one person to another. While a will distributes a person’s funds, assets, and belongings in the event of their death, a trust allows this designation to be made clear while the person is alive. 

Three parties are involved in a trust: the grantor, the trustee, and the beneficiary. The grantor and the beneficiary give and receive the assets, while a designated trustee is responsible for administering the trust. 

Why Should You Consider a Trust Fund?

Trust funds allow you to be very specific with how, when, and to whom your assets are allocated — when you’re alive. This is particularly helpful in the case of people who have concerns about being incapacitated later in life and under the care of a loved one or health professional. A trust will help ensure their money is spent and managed according to their wishes.

Trusts also have benefits that wills do not. Some trusts can keep assets from creditors if they pursue unpaid debts. Trusts also do not go through probate, which is the process of distributing assets when a decedent does not leave instructions and wishes. Additionally, some trust funds can reduce estate and inheritance taxes.

What Kinds of Trusts Are Available to You?

While the trust you set up will be unique to your situation and asset management, there are two different types that you’ll be asked to consider: revocable and irrevocable. 

Revocable trusts allow their grantor to make edits and adjustments as long as they are alive. Revocable trusts aren’t just to accommodate shifting family politics — they’re done in case the grantor needs to reallocate assets based on needs and additions or losses in a family. 

Irrevocable trusts cannot be amended. This type of trust is most frequently done in real estate and education (for example, college funds), as well as generation-skipping trusts, such as grandparents leaving assets to grandchildren. Irrevocable trusts also come with tax benefits. Assets placed in an irrevocable trust require that the trust have an employer ID, making it a business rather than an amount of money or property given to a person. Once those assets go to a business rather than a person, they’re no longer considered taxable income, which could significantly lower the taxes of the trustees and beneficiaries. 

How to Take the First Steps

The easiest way to get started on a trust is by contacting a lawyer. While civilians can set up their trust and have it notarized by a bank or notary public, it’s the lawyer’s job to ensure no essential documentation or steps are skipped. 

You might also be able to coordinate your trust through a financial planner. A skilled financial planner can help you maximize your benefits by discussing goals, coordinating with legal teams, and recommending which assets would be best to place into a trust.

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