What Are Trust Funds?

Trust funds refer to financial assets that pass down from an individual to a designated recipient, typically a child, spouse or close relative, and sometimes an entity, as stated by Investopedia. Trust funds serve as financial assistance tools to recipients, but vary widely in monetary amount. They produce assets from many sources, such as mutual funds, estates, cash and bonds, but despite offering financial security, do not activate until a certain period of time, such as when children reach a certain age or the donor dies.

Trust funds, once activated, provide many benefits. They typically allocate finances in set amounts, such as dolingout scheduled annual payments. People establish trust funds for several reasons: they help children enjoy financial security, relieve donors of having estates go through probate upon their death and provide financial support for charities and organizations donors support.

According to the United States government, trust funds establish legal allocations of wealth; they appear in writing, requiring an official designation of finances from one person,the grantor, to a recipient, the grantee. Trust funds appear in several forms: inter vivo, testamentary, revocable and irrevocable. Granters establish inter vivo, or living, while they live. Testamentary trusts, however, allocate financial resources upon the grantor's death. Regardless of type, trust funds should clearly specify a recipient, monetary amount and division of payments.