Most Frequently Asked Questions About Trusts

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A trust is a legal entity that can hold assets for the benefit of another person or legal entity. There are many different types of trusts, but they all have one thing in common: They provide a way to manage funds and property legally. With this article we aim to answer all your most frequently asked questions about trusts.

What is a beneficiary of a trust fund?

A trust fund beneficiary is the person or organization that receives the benefits of a trust. A trust fund beneficiary can be an individual or an organization. Such organizations often are nonprofit or  charities. Trust fund beneficiaries often include children, grandchildren and other young people. These are individuals who are in need of financial support until they reach adulthood or similar milestones (e.g., graduating).

What is a trustee?

A trustee is the person or entity (like a bank) responsible for administering and managing the trust fund. They serve as an agent for the beneficiary of a trust. This means that they have to ensure that all money in the trust is used properly, according to its terms.

Trustees can be individuals or companies. They may be lawyers, accountants or financial advisers. In any case, the settlor (that’s you!) has appointed them to fulfill this role. Therefore you have to cover their expenses or your lawyer. This way they can perform their duties. Such duties could include managing investments on behalf of beneficiaries. Another good example is paying bills on time and monitoring others who might use funds from your trust without permission.

How much should the trustee be paid?

You may decide that you want to pay the trustee for the time and effort they put into managing the trust. Keep in mind that a trustee will likely have a job outside of the trust. As a result they probably can’t spend all their hours on this task alone. So how much is fair? It depends on your circumstances, but there are some guidelines to help you figure out what’s reasonable.

One vs Multiple Trustees

  • If there is only one trustee and they don’t have another job, then it’s reasonable to pay them per hour. This would cover basic services like reading mail, managing finances and paying bills on behalf of you or your beneficiaries. It would also allow room for additional expenses. Usual expense include investment consultation fees or travel costs related to overseeing investments.

  • If there are multiple trustees, then it’s reasonable to pay them depending on how many hours they contribute each month. This works out so like the following way: One trustee contributes 100 hours while another contributes 50 hours over the same period. Both should receive a fair payment as compensation based on their individual efforts. Paying them once regardless of their contribution throughout every single month could be unfair.
 
In any case, the amount that is often reasonable reflects the complexity of their duties and your trust. In some cases a trustee may receive an annual percentage of the trust’s income as payment. This is especially true for when the trustee is a bank or a similar legal/financial entity.

What is a trust fund account?

A trust fund account is where you (or the trustee) have deposited the funds for a trust. Trusts can use their own account in order to fulfill their purposes. This is often money they will use to pay bills and make investments. Sometimes this means one bank account, but other times it might include shares of stock or bonds in addition to cash.

What is a “trust fund baby”?

Although originally this way a legal term, trust fund babies came to mean something different. A trust fund baby is a person who has been born into a wealthy family and so does not need to work for money. We often use this phrase to describe. generational wealth. This refers to the ability of people or organizations to pass on assets from one generation to another. And that is while still maintaining their value over time.

How much money do people usually put in a trust fund?

You may be wondering how much money is in a trust fund. The answer will depend on the specifics of your trust document. It can vary widely from one situation to another, but in general:

  • You typically establish a trust with a minimum amount of money that must be in the trust at all times. This amount may increase over time as the trustee adds more funds to it.

  • In addition, many trusts contain language that prevents any beneficiary from ever receiving too much money. Specifically, that is a certain amount of money beneficiaries can use at one time (e.g., $50,000). Let’s say this is true for your trust fund and that there were more than $50 million sitting in it today. With such a clause no beneficiary would receive more than a certain amount until everyone else had their share first!

Does the trust have to file its own tax return?

In general, if the trust has income. As a result it has to pay taxes then. So yes, you must file a tax return. That is usually the case for irrevocable trusts. Also, if it has a beneficiary who is not also the grantor then you may file a tax return.

If we’re talking about a revocable trust, though, then probably no. All bank accounts and investments should be in the grantor’s Social Security number. Therefore they are directly paying taxes already for this.

Final Thoughts

As you can see, there is a lot to think about when it comes to trusts. However, the good news is that there are many resources available to help you understand how they work. If you have any questions about this topic or others related to estate planning, don’t hesitate to reach out to us today!

After all, Myend offers the perfect estate and end-of-life planning for all! Regardless of whether you need a will or a trust for your children, we have just the document for you. Have a look here to learn more. And if you’re ready for action, sign up today for your free account! The estate planning of the future is here today.

Disclaimer

Myend is not a law firm, it does not engage in the practice of law, and it does not render any official legal advice. Therefore, you are hereby advised to seek your own legal counsel regarding any legal issues. Myend’s articles are meant to be taken as suggestions and therefore Myend carries no responsibility for the user’s actions.