Get Yourself FinLit

What's The Deal With Trust Funds?

So you just found out you are a beneficiary under a trust fund. Congrats! You’re one of the lucky ones, so you’d better make the most of it. Let’s talk about how a trust fund works and how you might want to manage it.

What is it?

Essentially you’ve been given a sum of money (or property, land, assets etc.) but there are restrictions about how and when you can access that money. Chances are, the money was given to you by a relative or family friend who worked damn hard for it. They wanted to make sure that you use the money as sensibly as possible and don’t blow it all on cocktails and clothes you don’t need. So basically, a trust fund is an inheritance, but there are rules about how you spend that inheritance money.

What are the restrictions?

The restrictions differ according to the settlor (the person who set up the fund) and how they organised it in the contract. Maybe there’s a lump some of money but you’re only given a little chunk of it every week, month or year. Maybe there’s a restriction where you can only spend it on your education. Maybe you have to spend it on buying your first home. Maybe you only get the money if you have an injury or serious medical condition. Basically, the settlor has created a contract (called a “trust deed”) and you have to fulfil that contract in order to access the money.

Every trust deed is different so you’ll need to talk to the trustee (which could be a solicitor/lawyer or administrator of the trust) about how yours works. In some cases, there aren’t many restrictions, which means you’re about to cop a fat lump of cash. If this is the case, it’s worth talking to someone about what you should do with your new funds.

What should I do with the money?

As previously mentioned, the last thing you want to do is blow all your money on disposable stuff that won’t have any lasting positive effect on your life. Most financial advisors suggest that you don’t touch the money for at least six months after you get it. This way you won’t make rash decisions that you’ll come to regret. Just pretend the money’s not there, mull it over and make a plan.

The next thing to do is to have a long hard think about your wants and needs. If you have no idea what you want to spend the money on, it will be way more tempting to blow it all recklessly. Ask yourself: Do you want to own your own home one day? Do you want to pay off your uni debts upfront? Do you want to save this for your retirement? Or do you really need to just go out and travel the world for a while? Think about it and decide.

If you’re already happy with your lifestyle and living within your means, you might as well invest the money, which will probably involve speaking to a licenced financial advisor.

Whether you invest the money in a huge purchase (like a house) or hold on to it for years and years, do your best to make it count. Enjoy your privilege.

This information is intended to be general in nature and should not be relied upon for personal financial use. When in doubt always seek professional guidance.
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