Where To Invest

Trust funds are becoming more and more commonplace amongst not only the super-rich class of citizens, but in average families as well. As the property value on homes increases and people make more and more money off the stock market, people are increasingly turning to trust funds for their children (and even grandchildren) as a way to preserve their own wealth, establish some financial security for their children, and minimize death taxes.

Who Benefits from Trust Funds?

Trust funds benefit not only the beneficiaries of the trust fund (usually, the children of the trustors), but the individuals who establish the trust, as well.

When a trust fund is set up for a child, the money or property is handled by a trustee-usually, someone who has experience and is responsible with handling money. Assigning a trustee to handle and control the money in a trust fund ensures that the beneficiary cannot recklessly spend all of their property.

For the parents, grandparents, or other individuals setting up the trust fund, there are numerous income, gift tax, and estate benefits that come with establishing a trust. In the case of grandparents establishing trusts for their grandchildren, they can establish a trust fund for their grandkids while they are still living, or they can arrange to have money put into a trust after their death.

What Type of Trust Fund Should I Choose?

When deciding to set up a trust fund for your child, it is important that you choose a trust fund that will qualify your investment for the annual gift tax exclusion. Currently, there are two types of trust funds you can set up (for a minor) that qualify for the gift tax exclusion:

· Section 2503(b) trust-with this trust, money must be annually given to the beneficiary while they are a minor. If your child (or grandchild) is too young to responsibly handle the money, it can be put into a separate account for them.

· Section 2503 trust-the section 2503 trust allows for all money and property in the trust to be used for the child until their 21st birthday. Once the beneficiary turns 21, all money left in the trust is given to the child, and it is their decision to either take the money or to extend the trust.

Remember....

It is important to remember that a trust fund is significantly different than a bank account. Once you put money into a trust for your child (or grandchild), you cannot get the money back-even if you really need it! Be sure to think about this decision before allocating money for a trust fund, and be sure to consult a legal professional before making this type of investment.

Author: Joseph Devine
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