Trust Funds
Trust funds are legal entities where assets are managed by one party for the ultimate benefit of another. Assets can take the form of any valuable commodity from cash to securities or real estate. Essentially trust funds are set up for a period of time until the beneficiary will be of sufficient age to manage those assets themselves.
The person or persons setting up a trust fund have an obligation to manage those assets for the benefit of the beneficiary, making sure that those assets maintain their initial value. Indeed, it is the duty of trustees to make sure that the initial assets not only maintain their initial value, but that they also keep up and possibly even outstrip the rate of inflation during the lifetime of the trust.
Trust fund history is fascinating and can be traced all the way back to mediaeval times when Crusaders went off to fight the infidels in the Holy Land. Not knowing when they might return to their homelands, knights would entrust their assets to trustees until such time as they would arrive back home to claim their holdings. This obviously caused many problems with knights who may have been absent for many years when less than scrupulous trustees then sold their associate’s property for tidy profits. Upon their return home, knights then found themselves penniless. Mayhem then ensued resulting in legal statutes being set up to provide security for assets left in trust.
Trust funds are often established as the result of a will, with trust assets then being assigned to related persons who have not yet reached their majority. Trustees are named in the will to look after the assets until the beneficiaries are able to “come into their inheritance”. Trusts are also set up by court order when assets are bequeathed to young individuals until they reach a certain age.
There are many forms of trust funds including discretionary trusts, bare trusts, charitable trusts and accumulation and maintenance trusts (A&M trusts). Many have complex tax issues associated with them, but in general terms, there are no significant tax advantages to holding assets in trusts as the trusts themselves are liable for all prevailing capital gains and local and federal income taxes.
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