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What is Trust Fund?

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Trust Fund

A trust fund is a mechanism through which movable and immovable properties are managed for the benefit of an individual or organisation. The corpus of a trust fund may include shares, bonds, deposits, residential and commercial properties, etc.

Parties to the Fund

Normally, every such fund will have three constituents –

  • the creator of the fund, called the Grantor. He donates valuable assets to the fund, specifies the terms and conditions subject to which the income flow is to be distributed and decides the mechanism for its management;
  • the person who will enjoy the benefits of the assets, called the Beneficiary;
  • the person/persons or organisation, called the Trustee/Trustees, who will supervise the management of the assets in accordance with the terms spelt out by the Grantor.

Types of Trust Funds

Basically, there are two types –

  • Revocable trust funds : Where the primary objective is to clearly distinguish personal wealth from business assets. Such funds have a specific objective and, once that is achieved, the grantor dissolves the fund;
  • Irrevocable trust funds : Which are most often preferred for apportionment of assets for the benefit children (especially when they are minors or intellectually challenged).

The trust fund arrangement facilitates management of properties in the way the Grantor desires.

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Randolph Rowe is a professional banker and former General Manager of Small Industries Development Bank of India (SIDBI). He brings with him the wealth of 34 years of all-round experience in the banking sector - comprising 12 years with IDBI and 22 years with SIDBI - which he combines with his flair for writing.

1 COMMENT

  1. Trust Funds seem like a better idea for individuals having any financial protection plans for retirement or minors or disabled relatives.However we would have liked the article more , if the author had explained about the tax implications also.

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