How to Set Up a Trust Fund and Why

Trust funds involve three parties, a trustee, a beneficiary, and a guarantor. The trustee can be an advisor or group of advisors, a bank department, or an individual. They have an important role to play in that they are tasked with fund and asset management in exchange for management fees.

Types of Funds

The main types of funds are inter vivos and testamentary funds, and the latter are established after death while the former are established during life. In addition, there are irrevocable and revocable funds, and the latter allow changes to be made during the guarantor’s lifetime. One example is a revocable fund that offers a reduction in real estate taxes. Trusts also come in different varieties, including non-resident, parental, settler-interested, mixed, and other types. There are also accumulation or discretionary, interest in possession, bare, business-related, and charitable and heritage trusts. The benefits offered depend on the instrument of choice. Parental trusts, for example, are subject to special tax regulations. Charitable entities are established to offer benefits to a large group of people, and for this reason, they are offered tax relief. There are also unit and investment trusts, heritage maintenance, employee benefit, and sinking or flat management company trusts. Unit trusts are established in the form of a pool of investments and are managed by seasoned investors. In general, the goal of such entities is to protect the assets and property under management. One option is to hire a legal advisor to discuss different options because there are many arrangements to choose from, including generation-skipping, qualified personal residence, living, charitable lead, and many others. Some people also opt for life interest and discretionary settlements. Discuss details such as inheritance tax, capital gains and income tax, and others.

Reasons to Establish a Trust Fund

A common reason to establish a fund is to distribute assets, property, and money among family members or other parties. Another reason is to prevent family feuds and problems that arise when assets are distributed. This is a tool for flexible distribution of real estate and other assets. The beneficiaries get access to the assets in different ways – either as a lump sum or in small but regular payments. Grantors can specify how the assets or money can be spent – for medical and emergency expenses, necessities, college education, rent, charitable activities, or anything else. There are specific types, for example, generation-specific trusts whereby the assets and funds are distributed among the guarantor’s grandchildren. Tax exemption is one of the major benefits for guarantors. Other types also offer major savings in the form of real estate taxes.

Asset Management and Other Responsibilities of Trustees

Obviously, one of the main benefits for guarantors and beneficiaries is wise property and asset management. Trustees have multiple responsibilities, and are tasked with reviewing of financial records, accounts and balances, and other financial information. They are accountable to all interested parties, including co-trustees and beneficiaries. A high standard of care is maintained. Fund managers are sometimes tasked with making investments to maximize wealth. In some cases, they are also tasked with portfolio diversification. They have different powers, among which the power to delegate, distribute assets and money, advance capital to interested parties (beneficiaries), and others. There are companies that offer a selection of services for property and asset management, including trust formation, annual income tax returns, reviewing and preparing of accounts, management and administration, and a lot more. Some managers are also authorized to offer investment advice. All investments and vehicles must be kept under review. If required, they are also allowed to delegate some of their responsibilities. To manage assets in the best way possible, trustees have the power to use different sources for income distribution, including capital, income, and others. Representatives also help divide and distribute difficult-to-divide real estate holdings and assets. Trusts are established to determine the types of property to be transferred, the parties that use and control certain assets, property that can be offered on sale, and other details. Different types of property can be placed in a trust, for example, mansions, boats and yachts, art, antiques and collections, and so on. The goal is to offer equal access to assets to all parties involved. Another reason to establish a fund is to ensure that a trustee manages all assets and property in case the guarantor becomes ill or disabled. A revocable living trust is one option.

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