How do they work?

A trust fund works by letting the Settlor take an asset such as money, out of their estate and put the money into a trust fund. The settlor then declares a trustee(s) to look after the asset and declares a beneficiary(s) to have use of the asset. The trustee’s job, is to manage the money and look after it, on behalf of the beneficiary. The beneficiary’s job is to use the asset, if they wish.

The Settlor can state what they want the money/assets to be spent or used – for example, on education or medical bills. When the settlor sets up the trust fund. They will give instructions to the trustee on what the asset is used for. this allows the settlor to have some say in what happens with the money / asset.

So, for example if a settlor tells the trustee, to only let this money be used for education, And the beneficiary wants to take money out of the trust fund to go on holiday. Then the trustee is with in his right to decline the request. As the beneficiaries isn’t using the money for what it is intended for. if however the beneficiaries wanted to use the money to go away on a school trip, then that would be a reasonable request from the beneficiary. 

The trust works like a bank account. with the trustee acting like the banker, making loans to the beneficiary.

Often, we get asked why we don’t advise to just give the asset to the beneficiary. This is because once the asset (in this case money) goes into the beneficiary’s estate. it becomes theirs, this means it comes a part of their estate and it can come under attack. From things such as divorce, creditors, or bankruptcy. Using a trust can help protect the money from these attacks.