Funded Trust

What Does Funded Trust Mean?

A funded trust, also known as a trust fund, consists of various assets such as stocks, cash, bonds, and properties, among others. As a legal entity that holds different types of assets, it involves three key parties: the grantor, the beneficiary, and the trustee. The grantor establishes the trust fund to ensure the financial security of the beneficiary, usually a child or an organization, until a specified age or a particular event occurs. The trustee, on the other hand, manages the fund in accordance with the terms outlined in the trust. Many trusts are funded in part with life insurance proceeds, and the rules for naming a trust as a beneficiary on a policy differ from those for naming an individual.

Insuranceopedia Explains Funded Trust

There are several reasons why people create a funded trust. Unlike a will, which becomes a public record after death, a funded trust remains private. Additionally, it can provide distribution over an extended period. For example, the trust can provide a monthly living allowance to the beneficiary once they reach a predetermined age. Permanent life insurance policies are commonly used to fund this kind of trust because the death benefit pays directly into the trust, and the cash value can grow over the grantor’s lifetime. Trust funds come in various categories, with the most common types being irrevocable trusts, revocable trusts, and charitable remainder trusts. An irrevocable trust cannot be altered, while a revocable trust, also known as a living trust, allows the grantor to modify or add assets during their lifetime. Finally, a charitable remainder trust is designed to distribute the trust’s assets to a specific organization or charity upon its termination.