What You Need to Know about Trust Funds:

What is a Trust Fund? - One could fill books and books with the intricacies of trust funds (http://whyatrust.com/), and because many lawyers specialize in just this area, you can be sure that they do. But the basic idea is very simple. A trust fund allows assets - money, real estate, stocks, bonds, etc. - to be transferred between two parties. Often, it is a parent or grandparent to a child or grandchild, but a trust can be set up for anyone by anyone. As an example, you can set up a trust with a charity as the beneficiary. So, a trust fund account allows someone to pass money or assets on to someone else. Why not just give that person the money or put it in a bank account? There are several reasons why trust funds can be more advantageous:

*It can be set up to produce cash flow. This is how our celebrity friends have a seemingly unending income: they get paid dividends from the trust. The principal remains the same. The potential dividends from a trust are much greater than any return you could get on a standard savings account or CD.

*You can impose time/age restrictions. Say you have a minor child who is the beneficiary of a trust fund. He may get a certain amount of money per week/month/year or funding for schooling or living expenses, but he doesn't have access to all of the money in the trust until he reaches a specified age, typically 25.

*Trusts ensure that your assets go to the recipient of your choice. Wills can be contested or go through lengthy probates, verbal wishes can be ignored. A trust cannot.

*If you have a trust for your children, those assets cannot be touched in a divorce, so you can be assured your children will be taken care of.

*Trusts can give you a tax break while you're living, and it may eliminate many types of taxes, including estate taxes, that your heirs would have to pay later.

*They can be put into effect both while you are living and after your death so you can protect your beneficiaries.

*Trusts help you protect your assets; stuffing your money in a mattress isn't a great financial plan. Putting it in a savings account is a bit better, but even that doesn't allow your money to work for you.

Do You Need a Trust Fund?:

*If you have children. One or both parents can be the trustee, and you can set the fund up to help your child manage his financial situation until he is of age. It also keeps relatives from bickering over a will.

*If you need privacy. Trust funds can help you keep your financial status and assets private so no one can access the information.

*If you make a lot of money. This helps you avoid probate and estate taxes and save money for retirement or for your heirs. This is important because if you leave an estate of $20 million, your heirs will get about $10 million after taxes. $10 million is nothing to sneeze at, but it's definitely not $20 million!

*If you want to avoid a conservatorship. If you don't have a trust, you may be appointed a conservator by the courts to handle your money if you become incapacitated. The most famous recent case of this is when Britney Spears's father was appointed the conservator of her estate. While all indications say that he is doing a good job, you have to have enormous trust in this person. The problem is, though, many times, you have no control over who the court appoints as a conservator. Having your money and assets in a trust protects you and keeps your money within your control.

Establishing a Trust Fund - The first step is to learn about what type of trust fund will work best for your situation. There are two basic kinds: living and non-living trusts. Living trusts can be either revocable, which means you retain control of the assets and can change the terms of the trust, and irrevocable, which means that the assets are no longer under your control, and the terms of the trust cannot be changed without the beneficiary's consent. The upside of an irrevocable trust is that the appreciated assets aren't subject to estate taxes. There are also different types of trust funds (http://www.livingtrustnetwork.com/estate-planning-center/revocable-living-trust/types-of-trusts.html), including family or bypass trusts, spendthrift trusts, living children's trusts, generation-skipping trusts, qualified personal residence trusts, irrevocable life insurance trusts, and qualified terminable interest property trusts. Your needs will dictate the best option. If, for instance, you have divorced and remarried, you may want a qualified terminable interest property trust. This allows you to direct assets to particular family members. Your surviving spouse gets dividend income from the trust for the remainder of her life, and the beneficiaries get the principal or remainder after that spouse's death. If you want to set up a trust for your child, but you know he can't manage money, you can set up a spendthrift trust. This is a complicated issue; it is really worth the time and money to have an estate lawyer discuss your options with you. This is especially important because laws, regulations, and fees differ from state to state. Setting up a trust fund (http://www.livestrong.com/article/216210-how-to-set-up-a-family-trust-fund/) without an attorney would be like wandering through the jungle without a guide; maybe you could do it without being bitten by a poisonous snake, but maybe not. Maybe your family would honor your wishes, but maybe not. Having them explicitly stated - and documented - is essential. Under your instructions, make sure to include a trustee. You can be the trustee of the trust, but if you should die, having a trusted trustee is important. You have some protection because trustees are required by law to work for the benefit of the trust. If you want the security of knowing your assets will be distributed according to you wishes, setting up a trust fund may be the perfect solution.