Trust funds are commonly used for estate planning, asset protection, or charitable giving. They allow the guarantor to control how their assets are distributed, either during their lifetime or after death.
Trusts are useful for many purposes, including avoiding probate, reducing/eliminating federal estate taxes, and managing property for a beneficiary when direct ownership by the beneficiary is not desired.
A trust allows you to be very specific about how, when and to whom your assets are distributed. On top of that, there are dozens of special-use trusts that could be established to meet various estate planning goals, such as charitable giving, tax reduction, and more.
This can include allocating living expenses or even educational expenses such as private school or college expenses and/or paying a lump sum or transferring property to the beneficiary or beneficiaries after death. Trust funds provide certain benefits and protections for those who create them and their beneficiaries.
Making investments using trust funds solely for the trustee's own benefit is considered a breach of fiduciary duty. It's also the trustee's responsibility to distribute assets in the trust to beneficiaries, according to the terms that you established.
Another possible way to get money out of a trust fund is to request a cash withdrawal. This would require putting the request in writing and sending it to the trustee. The trustee might agree. However, that individual or entity must also fulfill their fiduciary obligations.
Trusts offer amazing benefits, but they also come with potential downsides like loss of control, limited access to assets, costs, and recordkeeping difficulties.
Average trust fund amount
While some may hold millions of dollars, based on data from the Federal Reserve, the median size of a trust fund is around $285,000. That's certainly not “set for life” money, but it can play a large role in helping families of all means transfer and protect wealth.
One of the biggest mistakes parents make when setting up a trust fund is choosing the wrong trustee to oversee and manage the trust. This crucial decision can open the door to potential theft, mismanagement of assets, and family conflict that derails your child's financial future.
Trusts offer several advantages, such as bypassing probate, maintaining privacy, and providing more control over asset distribution.
To find out who owns the assets in a revocable trust, look to whoever is the trustee. If the trustee is also the grantor, then the grantor still owns and controls the assets. If the grantor assigned another person or entity as the trustee, the trust owns the assets, which are managed by the trustee.
The ability of a beneficiary to withdraw money from a trust depends on the trust's specific terms. Some trusts allow beneficiaries to receive regular distributions or access funds under certain conditions, such as reaching a specific age or achieving a milestone.
MANY PEOPLE ASSUME THAT TRUSTS are only for the very wealthy. That's not the case. “Trusts are tools that give you very specific control over how your wealth is used and protected, no matter how much money you have,” says Kevin Hindman, Wealth Strategies Executive with Bank of America Private Bank.
Disadvantages of Family Trusts
If you continue to treat the assets as your own, any trust could be open to challenge as a sham. Additional administration – If you establish a trust, you need to allow for the time and cost involved with meeting the trust's annual accounting and administrative requirements.
The grantor can set up the trust so the money is distributed directly to the beneficiaries free and clear of limitations. The trustee can transfer real estate to the beneficiary by having a new deed written up or selling the property and giving them the money, writing them a check or giving them cash.
Trust funds are designed to provide financial support and protection for your loved ones, and can be an effective financial tool depending on your circumstances. If you have assets you'd like to distribute before or following your death, you may want to consider setting up a trust fund.
Trustee Fees: If a professional trustee is appointed, expect ongoing fees. These fees are typically a percentage of the trust's assets, often around 0.5% to 1%.
The only purposes for which these trust funds can be used are to pay benefits and program administrative costs.
Disadvantages of Trust Funds
Costs: Setting up and maintaining a trust can be expensive. Loss of Control: Some trusts mean giving up control over your assets. Time and Compliance: Maintaining a trust requires time and adhering to legal requirements. Tax Implications: Trusts can sometimes face higher income tax rates.
Parents and other family members who want to pass on assets during their lifetimes may be tempted to gift the assets. Although setting up an irrevocable trust lacks the simplicity of giving a gift, it may be a better way to preserve assets for the future.
Rich people frequently place their homes and other financial assets in trusts to reduce taxes and give their wealth to their beneficiaries. They may also do this to protect their property from divorce proceedings and frivolous lawsuits.
Under California law, embezzling trust funds or property valued at $950 or less is a misdemeanor offense and is punishable by up to 6 months in county jail. If a trustee embezzles more than $950 from the trust, they can be charged with felony embezzlement, which carries a sentence of up to 3 years in jail.
The successor trustee is generally permitted to withdraw money from a trust account for the following reasons: To make distributions to trust beneficiaries in accordance with the terms of the trust (the trust may provide for trust fund distributions to be made all at once or over time)
Typically, a revocable trust with clear provisions for outright distribution might conclude within 12 to 18 months. However, in simpler cases, the process can take an average of 4 to 5 months without complications.