What Is a Trust Fund?

If one of your heirs is a minor or a person of diminished mental capacity, you may want to consider establishing a trust. Trust funds are ideal in situations where the beneficiary of a will requires that another person make his or her financial decisions.

A trust is a relationship that you establish with the help of a lawyer in which one or more people control the property of another — in this case the assets you plan to leave for your heir(s) — for his or her benefit. Trusts are often used when an heir hasn’t reached adulthood but could also be used to benefit the ward in a guardianship arrangement. There are three parties involved in a trust:

• The grantor: The person who provides the assets for the trust fund
• The trustee: The person who manages the assets on behalf of the beneficiary
• The beneficiary: The heir(s) who will receive the benefits of the assets via the trustee

Trust funds are usually composed of liquid assets such as cash or securities, but they can also include other types of assets like real estate, stocks, bonds and items of value. Any property that is included in a trust will not have to go through probate when the grantor dies and instead can be distributed quickly and privately. Depending on the type of trust you set up, you may also receive some tax benefits.