When you think about trust funds, you might think of spoiled, affluent, and teleserye-worthy people who receive millions on their 22nd birthday.
This negative perception of trust funds, on the other hand, is completely outmoded. This financial toolset has a lot of advantages for people who desire to leave their assets to their loved ones.
A trust fund is a legal entity that manages assets and properties on behalf of a company or an individual. Money isn’t the only thing that trust funds can hold; they can also hold businesses, jewelry, bonds, real estate properties, stocks, or a combination of assets. It can also be formed under a variety of circumstances.
While they may appear to be the same, forming a trust fund and writing a will are two separate legal ways to handle your possessions.
A will specifies what should happen to your assets when you die, but a trust fund is a fiduciary arrangement in which your trustee has the authority to hold your assets for the benefit of your beneficiary.
How Do Trust Funds Operate?
To comprehend how a trust fund operates, you must first become acquainted with the many individuals involved. This includes the following:
This is a person who donates their assets to a trust fund. This is the person to contact if you wish to form a trust fund.
This is the individual to whom you want to transfer your assets’ legal ownership. This might be a beloved charity, a member of your family, or a close friend.
This is the person in charge of making sure that all of the assets in your trust fund are dispersed properly. The trustee, which could potentially be a trust bank, is responsible for managing the assets in accordance with the grantor’s instructions.
The main reason for establishing a trust fund is for a person or organization to establish a legal vehicle that will specify the parameters for how assets will be managed, gathered, retained, and dispersed in the future, whether the grantor is alive or deceased.
This is a highly beneficial feature that distinguishes trust funds from other types of estate planning.
Types of Trust Funds
The various forms of trust funds available are listed below
A living trust, also known as a revocable trust, is established by the grantor during his or her lifetime to provide them more control over their property or assets. This trust allows the grantor to benefit from the assets while they are still living, but it also allows them to pass the assets on to their beneficiary once they pass away.
You can also bypass probate court by establishing a living trust. As a result, assets are distributed quickly. Another advantage of a living trust is that it is done in complete secrecy.
Furthermore, the trust’s provisions can be established while the grantor is still alive and not incapacitated.
Unlike a living trust, this is extremely difficult to terminate or amend without the beneficiaries’ consent. Following the trust’s establishment, the grantor must cede control and ownership of the trust’s assets.
Although it lacks the flexibility of a living trust, it can provide significant tax advantages to the grantor provided they give up control of their asset to the fund. This makes it an excellent solution for folks who live on big or complex properties. It, too, avoids probate, just like a living trust.
The trustee of this trust is responsible for managing the asset without informing the recipient. In addition, the beneficiaries will have no say in how the assets are managed.
If the possibility of disputes originating from individuals engaged is high, this form of trust is quite advantageous.
Asset Protection Trust (APT)
This form of trust will shield your assets against legal issues, creditors, and judgments against your estate, as the name implies. The assets are then held by the trustee, who is protected against divorce, judgment creditors, taxation, and bankruptcy.
The grantor establishes a charitable trust during their lifetime, and the assets are transferred to a non-profit organization or charity upon their death. This permits the charity to decrease or avoid paying taxes entirely.
This trust should be utilized if the grantor desires their property to go to their grandkids rather than their children. This allows the assets to avoid paying taxes.
Trustors can, however, offer their children access to the income generated by the trust fund’s assets.
Land trusts have a real estate component. It gives the trustee the authority to handle the trust’s assets.
This trust is a fiduciary relationship between a grantor and a trustee that allows the grantor’s surviving spouse and heirs to live comfortably even after the grantor’s death.
It only takes effect when the first spouse has died.
Qualified Personal Residence Trust
The Qualified Personal Residence Trust is an irrevocable trust that permits the grantor to exclude their primary residence from their estate.
Special Needs Trust
This trust was founded for the benefit of a special needs individual. It tries to cover their daily expenses and medical treatment while still allowing them to take advantage of government benefits.
If you believe your beneficiary would just waste all of the trust’s property and assets, this trust is ideal. It outlines when and how they will be able to access the funds or assets that have been assigned to them.
Who Needs a Trust Fund
People who desire to leave their possessions to someone else in an uncontested manner need trust funds. Trusts can be set up to distribute assets at a specified point in time, such as when a person reaches a certain age or graduates.
Furthermore, trust funds are intended for persons who do not want to deal with the problems that a will can cause. Trusts, unlike wills, are not subject to the legal verification procedure known as probate.
In the Philippines, can anyone open a trust fund?
A trust can be established by anyone who wants to ensure the future of their loved ones. It includes not just cash, but also real estate, heirlooms, and other assets.
People who want to form a trust fund should consult with a financial adviser, regardless of their wealth, to assist them manage their assets and properties in the best feasible way.