Trust Funds are not Just for the Rich
Many people see the term "trust fund," and immediately think of irresponsible rich kids yachting around the Caymans and wasting their parents' money. However, there is a lot more to trust funds than meets the eye. In fact, for a great many people in a wide variety of income brackets, a trust fund can be an excellent tool for their estate plan.
That's because a trust isn't a bad thing. It's an efficient way of transferring assets to someone else, and it's often a preferred method for people with children, especially those who are still minors or if they have a desire to leave something for their children without their having to deal with probate, which is the legal process that happens after someone dies. Often, probate can be a long, arduous process, especially when someone decides to contest the will. Trusts, on the other hand, do not go through the probate process, which means beneficiaries get their inheritance quickly.
There is another reason people like to set up trust funds, and that's privacy. Even though your will is a private document while you're alive, once you pass away the document is filed with the probate court and immediately becomes part of the public record, which means anyone can read it. Setting up a trust fund allows you to keep more of what you consider personal business away from the scrutiny of others. That doesn't mean it's impossible for any of the details to be revealed, based on current law, but a trust fund is far more private than going through the probate process.
When you think of a trust, think of something like a huge lockbox. You put the assets you want to go to the beneficiary you designate into that lockbox and seal it tight until you die, or until another trigger you set up is reached. The beneficiary doesn't have to be an individual, it can be a group of people, or even a charity you feel strongly about.
He trusts assets are managed by someone you designate as a trustee, and you provide instructions as to how the assets are distributed. It can be as a lump sum, or you can instruct the trustee to pay it out in installments at a frequency you decide. If you have an heir who is somewhat irresponsible, for example, you may want him or her to get a monthly stipend, or even to only get the money if they meet certain milestones, such as going to college or starting a business. As the "grantor" or "donor," the assets in the trust fund are managed and later discharged according to your wishes.
As is the case with any financial instrument, there are a great number of things you need to know about trust funds. To establish one, you should consult a qualified estates and trusts lawyer to help you set it up.