What is a trust fund?

Definition of trust fund

A trust fund is a private legal arrangement in which assets (such as cash, real estate and stock shares), are held in trust for a beneficiary. Trusts involve a ‘settlor’ (the person who puts assets into a trust)a ‘trustee’ (the person who manages the trust) and a ‘beneficiary’ (the person who benefits from the trust).

Why set up a trust?

Trust funds can be set up for a variety of reasons, including:

• controlling and protecting family assets.
• handling assets for a beneficiary who is too young to handle their own affairs.
• handling assets for a beneficiary who is incapacitated.
• passing on on a settlor’s assets while they’re still alive.
• passing on assets if someone dies with a will outlining their wishes (a ‘will trust’).
• passing on assets if someone dies without a will (in England and Wales).

There are multiple types of trusts in the UK. The most basic is known as a ‘bare trust’, which is often used to transfer assets to children or grandchildren. Bare trust rules allow beneficiaries to decide when the trust’s assets are transferred to them, as long as they are aged 18 in England and Wales or 16 in Scotland.