When a parent or guardian sets aside money for support of their children in the event that something happens to that person or if an individual needs to take care of an elderly parent or relative, a special account can be set up to allocate for unexpected care expenses.
This special account is called a trust fund. A designated trustee handles management of the trust fund. In special cases, there may be more than one trustee responsible for the trust fund. One example: an endowment to a large university. The trust fund is created with the availability of cash, stocks, bonds or real estate ventures. The trust fund can be set up for childcare or medical expenses or to give an endowment to an institution or a charitable organization.
For children, the trust fund can be created to pay for educational expenses or payment for financial expenses when a parent or guardian has died. Usually, a third party who is not related to the individual who initiated the trust fund manages this type of trust fund. This is a benefit to the receiver of the trust fund because there will be no dispute on who will directly benefit from the trust fund or how the money will be spent. Most often, this trust fund has a stipulation that the minor has to be a certain age before they are able to make a withdraw from the trust fund. When an individual receives the benefits from the trust fund after the death of the person who created the trust fund, the individual is spared of costly estate taxes.
If the child reaches the maturity age of the trust fund, the fund can be transferred into the individual’s name. Once this happens, the individual is responsible for the management of the trust fund. If the individual decides to not be the sole person responsible for the trust fund, they can choose to appoint another trustee for the fund. When the popularity of trust funds arose, many people referred to trust fund recipients as “spoiled” because many of those children would just spend their trust fund money. Current trust fund recipients continue to live life as usual and most often will make sufficient donations to charitable organizations that a in need of financial support.
If the account is set up for an elderly parent, the trust fund is created to cover social security and medical expenses.
When a trust fund is created to allocate money to an endowment fund or charitable organization, the trust fund gives support to programs or activities that are carried out on the wishes designated by the donor.