Trust Fund

What Is a Trust Fund?

A trust fund is a legal arrangement in which money or other assets are placed under the control of a trustee for the benefit of a person or group called the beneficiary. The arrangement is created by a written trust document that sets out who the beneficiaries are, what the assets may be used for, and when the beneficiaries may receive them. The trust holds legal title to the assets, and the trustee manages them on the beneficiaries' behalf.

How a Trust Fund Works

Three roles are usually involved. The person who creates the trust is called the grantor or settlor. The trustee holds legal title and must follow the trust's terms. The beneficiary receives the benefit, which may be income, principal, or a distribution tied to a set date or event. A trustee owes a fiduciary duty to act prudently and in the beneficiaries' interest, which includes keeping records, avoiding conflicts of interest, and investing with care.

Trust assets are often held in stocks, bonds, cash, or funds. Some trusts can be changed or ended by the grantor, known as a revocable trust, while others are fixed once created, known as an irrevocable trust. This distinction affects control over the assets and how they are taxed.

Advantages and Disadvantages

Trusts are commonly used in estate planning to set out how assets are handled after a person's death. Depending on the jurisdiction and how assets are titled, a trust may help some assets pass outside of probate, the court process for settling an estate. Trusts can also give structure to how money is managed for beneficiaries who are young or who need support handling finances.

Trusts have costs. Setting one up usually involves legal work, and ongoing administration may bring trustee fees, accounting, and tax filings. Trustees must follow strict rules, and an irrevocable trust is often difficult to change if circumstances shift.

Why It Matters to Investors

For individual investors, a trust fund is mainly a structure that holds investment assets rather than a product that can be bought directly. Knowing that a trust may be the registered owner of shares can help when interpreting ownership details in public filings. Assets held in a trust still face the same market risks as any other investments, and the trust structure does not guarantee any return.