Legal Definitions - trust fund

A trust fund is a legal arrangement where assets, such as money, investments, or property, are held by one party (the trustee) for the benefit of another party (the beneficiary). The person who creates the trust (the grantor or settlor) sets out specific instructions for how the assets are to be managed, distributed, and used. The trustee has a legal duty to manage the assets responsibly and in the best interest of the beneficiary, adhering strictly to the terms of the trust document.

Here are some examples to illustrate how a trust fund works:

• Example 1: Funding a Child's Future Education

  A couple, Sarah and Tom, want to ensure their newborn daughter, Emily, has funds available for her college education without giving her direct access to a large sum of money when she turns 18. They establish a trust fund, naming themselves as grantors, a bank's trust department as the trustee, and Emily as the beneficiary. The trust document specifies that the funds can only be used for Emily's tuition, room, board, and educational expenses once she enrolls in an accredited higher education institution. The bank's trust department manages the investments within the fund until Emily is ready for college.

  This illustrates a trust fund because Sarah and Tom (grantors) have placed assets into a legal structure managed by the bank (trustee) for the specific benefit of Emily (beneficiary), with clear rules about how and when the money can be used for her education.

• Example 2: Managing Inheritance for a Vulnerable Adult

  Mr. Henderson passes away, leaving a substantial inheritance. His son, David, has a disability that makes it difficult for him to manage large sums of money independently. To ensure David's financial security without jeopardizing his eligibility for government benefits, Mr. Henderson's will directs that David's inheritance be placed into a special needs trust fund. Mr. Henderson's sister, Aunt Carol, is appointed as the trustee. The trust document allows Aunt Carol to use the funds to supplement David's needs, such as paying for specialized care, recreational activities, or assistive devices, but not for basic living expenses covered by government programs.

  This demonstrates a trust fund where Mr. Henderson (grantor, through his will) has arranged for his assets to be managed by Aunt Carol (trustee) for the ongoing well-being of David (beneficiary), with specific guidelines designed to protect David's financial interests and eligibility for other support.

• Example 3: Philanthropic Giving After Death

  Ms. Rodriguez, a lifelong advocate for animal welfare, wants to leave a significant portion of her estate to support local animal shelters after her death. Instead of a direct bequest, she establishes a charitable trust fund in her will. She names a local community foundation as the trustee and specifies that the income generated from the trust's investments should be distributed annually among three named animal shelters in her city, with a portion also reserved for emergency veterinary care for stray animals. The trust is designed to exist in perpetuity, providing ongoing support.

  This example shows a trust fund where Ms. Rodriguez (grantor) has designated assets to be managed by the community foundation (trustee) for the continuous benefit of the animal shelters and stray animals (beneficiaries), ensuring her philanthropic wishes are carried out over the long term according to her precise instructions.