Trust funds are arrangements that allow individuals to create sustained benefits for another individual or entity. Parents sometimes establish a trust fund to provide some degree of financial security for their children, with the trust providing resources to meet basic needs after the parents are deceased. A trust fund can also be established to benefit a charity or other non-profit organization.

A trust can include a wide range of assets. In addition to cash, a trust fund may include resources such as property, stocks, bonds, or any other type of financial instrument. The trust fund may be managed by a single trustee, or be structured to allow for more than one trustee. It is the responsibility of the trustee to see that the resources included in the trust fund are used in the best interests of the recipient of the trust.

A trust fund normally has some limitations imposed on how the assets contained in the trust may be utilized. For example, the recipient may not be able to begin drawing any type of annual income from the trust until he or she reaches a certain age. In the interim, the trustee may be empowered to disburse funds necessary to provide food, clothing, and shelter to the recipient, and possibly also cover education related expenses. When the recipient reaches the age cited in the terms of the trust, he or she can normally begin to draw a limited amount of annual income from the trust, as well as petition for the right to assume full control of the trust.

The main idea behind a trust fund is to allow grantor or donor who established the fund to rest assured that loved ones or a particular organization receive the benefit of his or her estate after the grantor dies. The trust is aimed at providing sustained support in some manner, rather than simply leaving the assets to beneficiaries through a last will and testament. This is a particularly efficient means of making sure that children are mature enough to manage the assets well before placing the responsibility in their hands.

In modern times, the “trust fund baby” has emerged as a term that is often used to describe an individual who lives solely off the trust fund established by the parents. More often than not, the term is one of derision and is used to refer to someone who is not engaged in any type of labor or work in order to make a living. However, there are many trust fund babies that do work in a career of their choice and make money in their own right.

While in times past, the trustee was often expected to not receive any type of compensation from the trust fund, that is no longer the case. In addition to reimbursement for any out of pocket expenses incurred while carrying out the provisions of the trust, provisions within the legal documents establishing the trust allow the trustee to receive some type of annual compensation. The compensation may be a fixed amount or a percentage of any profit earned from the fund in the last completed calendar year.