What is a trust fund?
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At its core, a trust fund is money or other assets that are given to a person (the beneficiary) with restrictions on how they can retrieve it. The restrictions can be only X withdrawn per month, holding the funds until a certain age, requiring some other performance (as judged by the trust fund manager) to access the money, or something else. This money is said to be “held in trust.”
The big benefit to a trust is that the held asset isn’t actually owned by the beneficiary, so for example if they get sued and owe a lot of money, the trust is legally a separate entity that isn’t liable for the debt.
A trust fund is an investment account which is managed by someone (the trustee) other than the person whom it is intended to benefit (the beneficiary).
There are various reasons one might do that. Here are a few examples:
* If you’re giving a lot of money to a small child, and want the money to be spent on important things like a college education rather than blown on digital items in a cell phone game, you might not want to give the child *control* of the money until they’re an adult.
* If you’re a politician and want to invest some money in the stock market, but don’t want to create a conflict of interest where people might worry about you making decisions to benefit your own investments rather than the country at large, you might want to have the money controlled by someone who isn’t going to tell you what stocks they bought.
* If you’re setting up some sort of fund whose ultimate beneficiaries haven’t been determined yet–“compensation for anyone who turns out to have been harmed by such-and-such chemical leak”, “prize for whoever first lands a man on Mars”, etc.–then someone has to manage that money in the mean time.
My brother had a trust fund! Basically, mom (rightfully) didn’t think he’d be able to handle a big inheritance. So instead of just passing his share of her estate to him, she set up a trust fund (I got to be a co-trustee!)
All the money got put into a separate bank account and brokerage account; the trustees then handed over a certain amount of money each month.
The trustees are required to spend money only on things that match the trust requirements. In my brother’s case, that was anything for his health, welfare and happiness, so it was a pretty broad category.
The trustees also have a duty to be careful with the money. We didn’t invest in bitcoin, for example, and picked investments that were more likely to maintain their value over time. We also had to consider his likely needs.
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