A trust fund is a legal entity holding assets for specific individuals or organizations. Children often use trust funds as beneficiaries. They can protect your assets and ensure they are used to benefit your children. What does a trust fund do?

Guaranteeing Funds Are Available for Your Children

The trust protects assets from any legal claims. Except for retirement savings, all assets you own are subject to creditors and courts seizing them. Assets held in trust are legally protected. This is important if you have set up investment or savings accounts for your children and are forced to file bankruptcy or suffer business failure. Another possibility is to be sued for civil liability.

Revocable vs. Irrevocable Trust

However, trusts are subject to important distinctions. Assets must be kept in an irrevocable trust to ensure their protection. This type of trust is one in which the trust terms are set up at the beginning and then become permanent. Even if the trust is funded, you cannot alter them. You will have to give up some control of the trust. This will be necessary if you want your assets to be fully protected. Another type of trust is the revocable trust or living trust. Although you can retain full control of the trust, creditors and other parties will still be able to seize it.

Protecting Your Money

You can name beneficiaries through a trust. Once you have done this, you cannot change your mind. This allows you to name specific beneficiaries for your trust and even exclude certain children. Your wishes will be fulfilled.

This is true for regular investment accounts but not for wills. Unintended third parties can challenge any portion of a will that disperses your assets. A trust will guarantee that the money is only distributed to those named in the trust.

Ensuring Funds Are Available for the Long-Term

A trust gives you control over the distribution of trust money to beneficiaries. It can be done as a one-off lump sum or spread over several years. It can be set up as an annuity that will pay the beneficiary monthly, quarterly, semi-annually, annually, or even daily.

This type of "spendthrift provision" will ensure the money doesn't get dispersed from the trust and then be spent quickly by the beneficiary. This is especially important for children under 18 years of age, who may need a guardian or young adult children whom you might not trust with handling the money.

The trust can be set up to be distributed when the child turns 25, 30, or 50 years of age. This will allow you to defer turning over the trust assets to your child until they are financially responsible. You can also make monthly, annual, or lump sum payments until a specific age. Then the trust's remaining balance will be released to the child in a lump sum.

Ensuring the Money Is Used for Intended Purpose

You can set up a trust to decide the purpose of distributions. You can, for example, include language in your trust that states that money will be used only to pay for major expenses such as college tuition, purchasing a home, setting up a business, or caring for a grandchild or grandchild with disabilities.

Although it may be difficult to see it that way, having restrictions on how the money is dispersed to ensure that it goes only to help your child's well-being can make it possible to protect their child's future.

Make Sure You Have Money After You Go

Although a will can be used to leave your estate to your kids, trusts will achieve that goal more effectively and efficiently. This is especially important if you cannot leave your estate before your children turn 18. You can ensure that your children have access to funds during their dependency and after turning 18. You can set up a trust to ensure that money is available for your children's care, college education, and their transition into adulthood.

While you may be unable to cover all your essential needs, the trust fund can help. A trust can allow you to name an independent trustee who will manage the distribution of your assets after your death. This will ensure that the disbursements are made in a timely manner and at times you choose.

Conclusion

When it comes to giving assets to your children, you can use traditional investment accounts or even write a will. However, this may be done securely and in precisely the manner that you want with the use of a trust fund.