What Is a Trust Fund? 

A trust fund is an account that is set up to manage an individual’s assets. Typically, a beneficiary will receive the assets that are in the trust. The beneficiary will usually have rules about how the assets are handled, such as only being allowed to withdraw a certain amount every year. The value of the trust fund will fluctuate based on the market price of the investments. 

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UGMA/UTMA custodial account is a trust fund 

If you want to give a child a financial gift, an UGMA/UTMA custodian account may be an excellent option. These accounts allow you to transfer assets directly to a child at specific life events. These transfers are tax-free, but must be made before the beneficiary reaches the age of majority. This age is usually 18 or 21, depending on the state. 

There are many advantages to a UGMA/UTMA custodian account. One of the most important features is its flexibility. Unlike a traditional trust fund, which has strict criteria for allocation, a custodial account allows children to have more control over how their money grows. These types of accounts are also easier to open and manage. 

Another major advantage to a UTMA custodial account is that it is irrevocable. Once funds are transferred into the account, the parent or transferor can no longer take control of the money. In addition, the Custodian is allowed to use the funds without regard to support obligations or the minor’s property. 

Irrevocable trusts offer tax benefits 

Irrevocable trusts are a great way to give assets to beneficiaries who will receive them tax-free. These types of trusts can be used to avoid gift taxes, provide for disabled children, or secure special needs child care. However, irrevocable trusts are much more complex than revocable trusts. Whether you decide to use this type of trust depends on the specific circumstances surrounding your situation and your goals. 

First, an irrevocable trust allows you to avoid probate. This is a time-consuming and costly process that distributes assets after a death. Once you transfer assets into an irrevocable trust, they no longer form part of your estate, and your beneficiaries will not be affected by the dissolution of your marriage or divorce. Another benefit of an irrevocable trust is that it protects your assets from creditors and liens. Additionally, the transfer of assets into a trust allows you to qualify for Medicaid benefits. 

Another tax benefit of an irrevocable trust is the annual exclusion amount. Generally, a person with an annual estate tax exemption of $4 million or more can transfer $2 million to an irrevocable trust and avoid paying gift taxes on it. This exclusion applies to both individuals and married couples filing a joint tax return. You should consult with an estate planning attorney about the tax implications of creating an irrevocable trust. 

Assets that should not be placed in a trust fund 

You may be planning on setting up a trust, but you may not know which assets to place in it. While some assets can be transferred to a trust, such as cash, real estate, and stocks, there are some assets that should never be put in a trust. These assets may include investments, business interests, and even your IRA. Once you’ve decided on which assets to place in a trust, you will need to name beneficiaries. These beneficiaries can be your spouse, your children, or even a foundation or charity. 

Although personal residences are exempt from capital gains tax, commercial and farm land are subject to the tax. If you plan to transfer these types of assets to a trust, it is advisable to consult a tax advisor or an attorney before making the transfer. Also, you must consult an attorney if you plan to transfer Section 1244 stock from a professional corporation.