Trust funds are schemes that allow individuals to create lasting benefits for another person or entity. Parents sometimes establish a fund to provide some financial security for their children, with the confidence to provide resources to meet basic needs after the parents have died. A trust fund can also be established for the benefit of a charitable or other non-profit organization.
A fund may include a wide range of assets. In addition to cash, a fund may include resources such as property, shares, bonds, or any other form of financial instrument. The trust fund can be managed by a single administrator or be structured to allow more than one administrator. It is the responsibility of the administrator to see that the resources included in the trust fund are used in the best interest of the recipient of that trust.
A trust fund usually has some limitations on how the assets included in that trust can be exploited. For example, the recipient may not be able to begin drawing any type of annual revenue from that trust until he or she reaches a certain age. Meanwhile, the administrator may have the power to pay the necessary funds to provide food, clothing, and shelter to the recipient, and possibly also cover training-related expenses. When the recipient fills in the terms of that trust, he or she can usually begin to draw a limited amount of the annual income from that trust, as well as the petition for the right to take full control of that trust.
The main idea behind a fund is to allow the concessionaire or donor who established the fund to be sure that their loved one or a particular organization benefits from his or her property after the concessionaire dies. The purpose of that trust is to provide sustained support in some ways, rather than simply letting those assets to the beneficiaries through a last will and will. This is a very effective means of ensuring that children are mature enough to manage the assets well in advance of placing the responsibility in their hands.
In modern times, “trust fund baby” has emerged as a term often used to describe a person living exclusively off the trust fund created by the parents. More often than not, the term is one of mockery and is used to refer to someone who does not engage in any kind of labor or work to earn a living. But there are many trust fund babies working in a career of their own choosing and making money in their own right.
While in earlier times, the administrator was often not expected to receive any kind of compensation from the fund, that is no longer the case. In addition to reimbursement for anyone out of pocket expenses during the execution of the provisions of that trust, provide provisions within the legal documents proving the trust trustee to receive some form of annual compensation. The compensation can be a fixed amount or a percentage of profits earned from the fund in the last completed calendar year.