This article explores what a trust fund is and the different ways of how to get money out of a trust fund. Trust funds sound like a freeway ticket to wealth and being rich. They have a bad reputation, marking people with trust funds as spoiled and bratty. But times are changing now and it is not necessary that your trust funds have to be in large amounts providing thousands of dollars for monthly income.
Sure there are a lot of millionaires out there who have setup their trust funds which do pay a huge sum of money or have huge assets in them but it is not necessarily so. Unlike regular assumptions, you do not have to have to loads of money in order to own a trust fund.
The definition of trust funds is straightforward. Trust fund is a legal entity which carries the assets of a person or a group of people. There are different roles that are played by people who are linked with the trust funds.
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A person who is opening up the trust fund is called the grantor. There are alternate names for the grantor as well such as settlor or trustor. All these names imply the person who is opening up the trust fund. This person is the one who decides how the trust funds will be run. They set the rules and regulations behind the trust and how the trust funds can be used. Any condition that has to be applied on the trust funds are set by the grantor as well. It is also a grantor who picks out the trustee.
A trustee is a person appointed by the grantor. A neutral person is chosen for this purpose. This means that a person who has no interest in the amount or wealth of the trust funds is chosen. They help in moderating the transactions. They oversee the money or assets. The distribution of the assets is in the care of a trustee. They are given the guidelines about how the trust funds need to be managed and provided to the selected person.
A trustee does not have to be a single person. Instead multiple people or even a bank or company can be a trustee as well. Trustees do not own the assets or property. They just manage them as per the rules and regulations.
The person who is to receive the assets or funds of the trust is called the beneficiary. They do not own the trust funds. This means that they are bound to the rules and regulations which have been set by the grantor. For example, a grantor may have set the limit that a beneficiary cannot get anything from the trust until they are 30 years old.
In such conditions, a beneficiary cannot surpass the rules set by the grantor and they must wait till they are 30 years old in order to gain full access to the trust funds.
Types of Trust Fund
There are two major types of trust funds. These types determine the role and access of a grantor in the trust fund. As per the type of trust fund, tax amounts to be deducted are set accordingly.
1. Irrevocable Trust Funds
In this type of a trust, the grantor cannot have access to the property or assets once they have become a part of the trust. The beneficiaries cannot be changed either once they have been finalized. Since the ownership of the grantor is lost this means that they are not subject to taxes on the property or asset either. The grantors are even exempted from the estate taxes once they pass away.
The funds in an irrevocable trust cannot be taken by the creditors or lenders after the grantor passes away before paying them off. They are completely safe to be used by the beneficiary.
2. Revocable Trust Funds
The grantors have a lot more access in revocable trust funds. They can change beneficiaries and trustees of the trust fund. This means that they have the right to undo the trust fund if they wish to. Since the person owns the trust funds, this means that they will have to pay the estate taxes and any other eligible taxes on their assets in the trust fund.
How to Get Money Out of a Trust Fund
A grantor decides how the beneficiary can get the money out of the trust fund. There are different options from which a grantor can choose from in order to grant a way for a beneficiary to get money out of a trust fund.
Receive Small Payments
Grantor may decide that the beneficiary will receive their funds in small amounts. This can be done in multiple increments. For example, a beneficiary may receive a small monetary amount on a monthly basis. This is done by beneficiaries in order to protect their assets. Sometimes, beneficiaries go through the trust funds immediately and lose the whole amount.
So in order to keep things safe for all amounts, beneficiaries are rewarded with small payments. Since the administration of the trust is to be handled by the trustee, then the trustee will be involved for a longer time which means that their fee will be deducted from the fund continuously.
Receive Total Money out of Trust Funds Once
In this scenario, the grantor allows the beneficiary to receive the whole fund in one go. This means that whatever asset, money, or property is stored in the trust fund will be given to the beneficiary completely. If the assets are large, they may be split into a few increments.
In short, how to get money out of a trust fund is not a difficult question. There are several ways in which money can be extracted out of trust fund. But it is always best to consider the advice of a legal lawyer or legal advisor before making any sort of financial decisions.
They can help guide a person interested in setting up a trust fund in how they should set up the method to get money out of the trust fund. An interested grantor must explore different options available to get the money out of the trust fund and choose the best one wisely.
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