As more people grow sceptical about the traditional savings bank account, they look towards more credible ways to secure their money for retirement. One method that quickly comes to mind is the ‘Trust Fund’.
What is a trust fund and why do people prefer it as a more secure savings option?
The Trust Fund
Simply put, a trust fund is one that is made up of various assets with the purpose of offering value to an individual or a company. The most common type being when a grantor opens one solely to provide financial security for an individual; maybe a child, grandchild or a dependent relative. Charity organisations and non-profit institutions can also be the beneficiary of a trust fund.
How does a trust fund work?
A trust fund may contain cash, stocks, government bonds or other types of investment vehicles. According to a real estate expert at Turbo Tap Property Managment, “Some people use proceeds of property investments to finance their trust fund for the future.”
The money in a trust fund isn’t immediately accessible to the recipient until they meet certain conditions. It may be a specific age, or an event such as graduation. After which they may start receiving an annual income from the fund. A trust fund may be managed by a trustee or group of trustees to suit the conditions set by the grantor of the fund.
Why people prefer trust fund investments
Firstly, a trust fund can be placed under the stewardship of an independent third party. This means it is not necessarily subject to the same rules as your other investments when you pass on. So, where family members can easily access your bank accounts, a trust fund has stricter rules.
- More reliable for beneficiaries
If you don’t trust certain family members to abide by your Will, a trust fund is a more secure way to ensure your wishes are obeyed. Especially because, an independent third party can be placed in charge. For example, if you don’t trust your family to provide for your child from a previous marriage, a trust fund can ensure they are adequately provided for.
- Tax reliefs
Some trust funds are liable to tax exemptions or rebates. For instance, a Charitable Annuity Trust (also known as Charitable Remainder Trust), is able to provide a cover for up to thousand, or millions of funds in form of taxes, while supporting the cause of your preferred charity foundation.
- Maximise funds for more generations
Savvy investors often use trust funds to maximise their estate tax exemptions so they can expand more wealth for forthcoming generations.
- Help grandchildren have a good life-start
You can set up a trust fund to support your grandchild’s educational fees. However, it doesn’t stop there, the remaining principal amount can be distributed over the years after graduation, to give them a head-start in life.
- Protecting a business legacy
You can use a trust fund to protect your company legacy in the event of your death. For example, you currently own a coffee store franchise and have a dedicated customer following, but you don’t trust your family to maintain that obligation when you die. You could use a trust fund to ensure your business continues to operate, and at the same time pay members of your family quarterly or annual from the proceeds.
Finally, you can also transfer huge amounts of money through a trust fund, including starting up a life insurance policy that pays the beneficiaries of the trust when you pass away.
Trust funds are generally more reliable than typical bank accounts. In time, more people will continue to use them as a secure form of securing their interests, literally.