Ask Karen Gibbs

Veteran business correspondent Karen Gibbs answers your personal money questions and addresses current topics that affect YOUR finances on a daily basis. Karen is the financial expert in your corner--no question is too basic or too small. Karen boils down the issues simply: here's what you need to know, and here's what you need to do. Send your money questions to and post your comments below.



Trust Funds vs. Trust Accounts

Karen Gibbs

Hi Karen, what is a trust fund or trust account?

- Curious in Columbia

credit cards and budgetingCurious, thanks for your question.  A trust fund or trust account is an account set up by the grantor and managed by a trustee for the benefit of the beneficiary.
Most people think of trust funds as accounts set up by the wealthy to shield their assets from probate or taxes so that their children are well taken care of after one’s death.

A trust can be revocable, also known as a living trust, allows the grantor to control the assets of the trust during the grantor’s lifetime.  If the grantor’s wishes or circumstances change, the grantor can change or dissolve the trust.  Upon death of the grantor, the trust becomes irrevocable.
An irrevocable trust cannot be changed by the grantor once it is established.  The grantor loses control of the assets and cannot change the terms of the agreement once executed.

You can place most any asset into a trust; cash, stocks, bonds, fine art and jewelry.  You name the beneficiaries and set the terms and parameters of the agreement.  You may put limits on what the trust may be used for.  You may also stipulate how frequently the funds are disbursed.

Since the trust assets are no longer yours, you are not liable for capital gains taxes.  You may not be liable for estate or gift taxes, but as laws differ from state to state, it is wise to contact a trust attorney.  Factor in the legal fees required to maintain a trust before handing over funds.

529 college savings plans are a form of trusts, as are uniform gift to minors and uniform transfer to minors’ custodial accounts.  The assets are no longer under your control or tax liability and the beneficiaries may not use the funds as you desire.  Also, money in a minor’s custodial account may count against receiving needs-based financial aid.

If you’re considering bequeathing a large amount of money to charity or to your grandchildren, you may want to investigate an irrevocable trust.  If you’re looking at a more modest sum, do your research on a Kiss Trust.  It is inexpensive to set up, the entry threshold is lower and you can still control the purpose of the funds, when they will be disbursed and to whom.  There are a host of investment products in which to invest and more than one person/grantor can contribute.  

Trusts can be a smart way of thinking about your money and leaving a legacy.  

Best of luck!

- Karen

No comments.
Enter verification code: Captcha not loaded