A trust fund is a special type of account used to safeguard assets from taxes, creditors and other liabilities. There can be many benefits to establishing a trust fund, and it can be done by just about anybody. While there is no set amount of money required for setting up a trust fund, there are some practical considerations for determining whether or not to establish such a fund.
A trust is a special type of legal holding entity that a person, called the grantor or settlor, creates in order to keep items of value, typically cash, real estate, stocks or bonds, for someone else, known as the beneficiary. The trust is run, or administered, by a third party -- in some cases this can also be the grantor -- called the trustee. There are different kinds of trusts, but they can be categorized into two main types, living trusts and testamentary trusts. A living trust becomes effective while the grantor is alive; a testamentary trust is created by a will upon the grantor's death.
There are several different reasons a person might choose to open a trust fund. This type of fund provides asset protection by providing for the management of assets if the grantor dies or becomes incapacitated. A trust can also provide significant tax benefits and can allow an estate to avoid probate as well as distribute assets to beneficiaries more quickly than when probate is involved. Another benefit of using a trust is that, unlike a will, the trust is a private document that is not available for public inspection.
There is no financial requirement to open a trust fund. The main purpose of doing so is to avoid probate hassles and expenses when the grantor dies. All that is specifically required to establish a trust fund is to pay the legal costs, which include the creation of the document establishing the fund and any fees related to filing. These amounts vary widely by area and by the means used to create the trust fund. Using a lawyer will cost a great deal more than using self-help forms available from many different sources, but the filing cost remains the same.
A person with a large estate, such as one worth a million dollars or more, will save a lot of money by setting up a trust, making it worthwhile. On the other hand, a person with a much smaller estate does not gain as much benefit from a trust and may find it makes more sense just to have a will. Although the trust can be funded with a small amount of money, ultimately the whether or not to create one is a financial decision based on the overall benefits and not on the amount of the trust.
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