Quora Answer: What is a Trust Fund?

The following is my answer to a Quora question: “What is a trust fund?  Do I need one?”

A trust fund is simply a legal agreement, where an entity set up with the express purpose of holding, and managing assets, on behalf of a natural person, or another entity.  This arrangement consists of the grantor or settlor, who sets up the funds and furnishes the assets to be managed; the beneficiary, who benefits from the trust; and the trustee, who manages the assets of the trust on behalf of the settlor.

A trust is a useful vehicle to protect your assets from creditors, to mitigate your personal tax liability, and to safeguard your assets from a divorce settlement.  This works only when the trust is irrevocable.  A revocable trust grants no such protection.  A trust is also useful for putting funds aside for select beneficiaries in the event of the settlor’s demise, according to certain terms of disbursement, bypassing the probate process.

If you do not know if you need a trust, you should have a conversation with your lawyer, or financial consultant on the matter.