Parents are always thinking about securing their kid’s future. With inflation and the kind of economy we are in, creating some financial stability for our children is a priority. There are different ways to save for the future – mutual investments, stocks and bonds, fixed deposits. One of the more popular ways is establishing a trust fund, a corpus that will aid your child when he/she needs it the most. Especially if you won’t be there for them.
What Is A Trust Fund?
As the name implies, it is a fund set up by people, who want to pass on their money to their family and friends, after they die to ensure that it is utilized properly. On the face of it, it might seem that this is a luxury for the ultra rich or wealthy people, however, if you plan well your child can have a trust fund too.
Your hard earned money is not something you would like to see wasted. You would much rather it went to a charity than for it to be spent on frivolous things with no regard for how that money came to be. Hire the services of an attorney to set up a trust. Have clearly defined conditions for the withdrawal of the money and how it is to be used and disbursed.For instance, the money can be given in monthly deposits, or will go directly to their college or as a down payment for their home, etc.
Anything from cash, stock, to real estate can be part of the trust. Once you put these into a fund, you lose all your rights to the property, and you are also exempted from any kind of tax on them. Upon fulfillment of all the terms and conditions, your beneficiary will get the amount/property from the trust.
Different Opinions On Trust Funds
Though, this seems to be a good idea for your child’s future, parents often make some common mistakes leading to the trust getting mired in litigation and ultimately not being helpful to the people it was originally meant to help out. Firstly, parents do not think about the trustees of the fund, whether to keep a single or multiple trustees. Secondly, they are not completely defining the terms or goal of the fund, as in when their children should receive the money and how. Finally, they are also missing out on the beneficiary designations, when the fund is established.
Whatever way you choose to create a trust for your child, you need to begin as early as possible, or when your child is young so that the money has a longer time to accrue interest. Trust funds are a good way to ensure that any fiture needs your child might have are taken care of. You do, however, need to ensure that the terms and conditions are well-defined so that your child is benefitted.