You Can Still Benefit From Setting Up A Trust Fund, Even If You’re Not Rich

*Click to read the affiliate disclaimer*

(Last Updated On: )

Most people have heard of the general concept of a trust fund – but the majority don’t know how they work or why you might want to use one. 

The basic idea of a trust fund is to secure somebody’s money, even after they die so that it can go towards specific causes. Typically, people store trust wealth in the form of cash, real estate, stocks, or bonds. 

Trust funds are, however, interesting from a legal point of view. They are irrevocable, which means that once you establish one and set up the parameters, you can’t change it at a later date. You have to stick to the rules. 

When To Set Up A Trust

Pixabay – CC0 License

So when should you set up a trust fund? Usually, people set up trusts when they have worked hard all their lives to accumulate a pile of money, and they don’t want it going towards the wrong things. 

For instance, you might mention your trust in your will and specify that the beneficiary can only use the money it contains to pay for your grandchild’s education. 

Trusts are also ideal for people who don’t want to give beneficiaries “lump-sum” gifts, just in case they spend them irresponsibly. It is a way to ensure the financial prudence of the family, even if you don’t trust your next-of-kin. 

How To Set Up A Trust

Before you set up any fund, you’ll need an LEI for trusts. This unique identifier helps others in the financial system to recognize your assets and distribute them according to your will and inheritance tax laws. Usually, you place your money in stock or real estate, but there’s no rule against other assets, like gold or oil. 

Next, you approach a solicitor with experience in setting up trusts and ask them to create a legal framework around how executors are to distribute money once you’re gone.

You have broad scope here to say pretty much whatever you like. You can set it up so that beneficiaries receive monthly payments, or only get access to cash on certain conditions. You can also instruct beneficiaries on the way that they’re allowed to spend the money – something that is enforced by the holders of the trust. 

What Are The Drawbacks?

The reason trusts have a reputation as something that is only for the rich and famous is the fees. If you want to set one up, you’ll have to provide various attorneys with money to keep the thing running. And that can eat into your overall pot of money. 

The high costs come down to the extraordinary level of detail of legal documentation that must accompany the trust. Lawyers will often spend hours trawling through the stipulations line-by-line, looking for potential errors that beneficiaries could exploit. 

Trusts also tend to be a lot more expensive than good old-fashioned wills. Taxes on wills might be higher (depending on where you live), but they cost very little to set up in the first place. 

Trusts, therefore, are ideal for people who want their money to go towards a particular cause when they’re gone. For that reason, everyone should consider creating one.