Everyone knows what a trust fund kid is. What most may not realize is that more and more ordinary people are setting up trust funds. Today’s trust fund kid may live next door.
A trust fund kid may not just have money to look forward to, as the fund can include stocks and shares, property and bonds. It is down to the appointed trustee to manage the fund. They can allocate limited amounts of the fund for everyday expenses and also for education. However the bulk of the fund will remain in trust until the trust fund kid reaches a certain age. They will probably not receive an income from the fund until they reach a specific age.
The whole purpose of the fund is to ensure that the donor knows the trust fund kid will benefit from all or part of their estate when they die. It is a way of ensuring sustained support for the child.
The donor can stipulate when the trust fund kid receives their inheritance. It doesn’t have to be given all at once as certain amounts can be allocated when they reach specific birthdays. It is a good way of ensuring that the child is responsible and mature enough to deal with the assets when they receive them.
This is one of the major differences between a trust fund and just an ordinary account. If an ordinary account is set up for a child then they are entitled to all the money from that account when they reach the age of majority. This age differs as to where the account is held.
A trust fund can be a tax efficient way of passing on money, especially from a grandparent. This is because the parents may already be wealthy, and receiving more money could increase their tax liability. Many grandparents have become wealthy through rising property prices and the stock market, and are setting up trust funds for their grandchildren as part of their estate planning.
Once money or assets have gone into a trust fund then they are the property of the trust fund kid, and cannot be taken back, even if the donor subsequently falls on hard times. The trustee is entitled to receive compensation for any out of pocket expenses incurred during the administration of the fund. They may also be entitled to a fixed amount or a percentage of any profits earned by the fund each year. When the trust fund finishes, the trustee must give an account to the trust fund kid that shows how it has been administered over the years.