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When you hear the term trust fund, the first thing that comes to mind may be spoiled, wealthy, and teleserye-worthy people who get millions on their 21st birthday.
However, this bad reputation trust funds get is immensely outdated. This financial toolkit actually offers tons of benefits for anyone who wants to pass down their assets to their loved ones.
What is a Trust Fund?
A trust fund is a legal entity that holds assets and properties for an organization or a person. Trust funds are not only limited to money, but also businesses, pieces of jewelry, bonds, real estate properties, stocks, or a combination of various assets. It can also be formed under many stipulations.
While it may sound the same, opening a trust fund is not the same as drawing up a will since these are different legal ways to handle your assets.
A will refers to what you want to happen to your assets after you pass away, while a trust fund refers to a fiduciary relationship where your trustee has the right to hold your assets for your beneficiary.
How Trust Funds Work
To be able to understand how a trust fund works, you need to know the different people involved in it. This includes:
This is someone who transfers his or her assets to a trust fund. If you want to start a trust fund, this would be you.
This is the person to whom you want to give the legal rights to your assets. This could be your favorite charity, a family, or a friend.
This is the decision-maker who is in charge of ensuring that all the assets in your trust fund will be distributed appropriately. The trustee, which could also be a trust bank, must manage the assets according to the terms of the grantor.
The major motivation to have a trust fund is for a person or an organization to create a legal vehicle that will set the terms for the way assets will be taken care of, gathered, held, or distributed in the future whether the grantor is dead or still living.
This is a very useful feature that makes trust funds unique from other estate planning methods.
Types of Trust Funds
Here are the different types of trust funds you can establish.
A living trust, also known as a revocable trust, is made by the grantor during his or her lifetime so they can have better control over the property or assets.
This trust allows the grantor to benefit from the assets involved while alive, but still pass the assets to their beneficiary during their death.
If you open a living trust, you will also be able to avoid probate court. This leads to fast asset distribution. Another benefit of a living trust is it is done with a high level of privacy.
Not only that, but the terms of the trust can be granted while the grantor is still living, and not incapacitated.
Unlike a living trust, this is very hard to revoke or change without the permission of beneficiaries. After it is established, the grantor needs to relinquish their control and ownership of the assets that are part of the trust.
Although it doesn’t offer as much flexibility as the living trust, it can give considerable tax benefits to the grantor if they give away the control of their asset to the fund.
This makes it a great choice for people living with complex or large estates. Just like a living trust, it also avoids probate.
Asset Protection Trust (APT)
As its name suggests, this type of trust will protect your assets from legal disputes, creditors, and judgments against your estate. This allows the trustee to hold the assets so it is protected from divorce, judgment creditors, taxation, and bankruptcy.
For this trust, the trustee is tasked to manage the asset without the beneficiary knowing about it. The beneficiaries will also not have any input as to how the assets will be handled.
This type of trust is very beneficial if the likelihood of conflicts arising from those involved is high.
A charitable trust is established in the lifetime of the grantor, and the assets are distributed to a non-profit organization or a charity upon their death.
This allows the charity to reduce or completely avoid taxes.
If the grantor prefers their properties to go to their grandchildren instead of their children, this trust should be used. By doing this, the assets can avoid taxes.
However, trustors also have the option to give their children access to the income from the assets in the trust fund.
Grantor Retained Annuity Trust
This type of trust is established to minimize huge taxes on large financial and property gifts to family members.
Assets are included in the trust, and an annuity is paid each year. When the trust expires, it is already tax-free.
Individual Retirement Account Trust
Land trusts that are tied to real estate. It allows the trustee to manage the property involved in the trust.
This trust is a kind of fiduciary relationship between a grantor and a trustee so the surviving spouse and the heirs of someone can still live a comfortable life even after the grantor’s death.
It only goes into effect when the first spouse passes away.
Qualified Personal Residence Trust
Qualified Personal Residence Trust is a type of irrevocable trust that allows the grantor to remove their residence out of their estate.
Qualified Terminable Interest Property Trust
This trust allows the grantor to divide his or her assets among different people at different times.
For instance, a portion of the trust can be allocated to their spouse, and then to their children when their spouse dies.
Special Needs Trust
This trust is established for the benefit of a person with special needs. It aims to fund their day-to-day needs and medical care, while still enjoying the benefits given by the government.
This trust is very useful if you think your beneficiary will simply squander all the property and assets included in the trust. It specifies when and how they can access the money or assets assigned to them.
This trust is also called last will and testament. It is used to appoint someone to manage and distribute your properties and assets when you pass away.
Who Needs a Trust Fund?
Trust funds are essential for people who want to leave their assets to someone else in an incontestable way. Trusts can be set up to pay out assets during a specific time such as when a person turns a certain age, or when they graduate.
Additionally, trust funds are meant to be used by people who want to avoid the issues they may face with a will. Unlike a will, trusts are not subject to a legal verification process called probate.
Can Anyone Open a Trust Fund in the Philippines?
Anyone who wants to set up a way to secure the future of their loved ones can open a trust. It does not only involve money, but also real estate, heirlooms, and other properties.
People who want to open a trust fund, regardless of their wealth, are advised to work with a financial adviser to help them allocate their assets and properties in the best way possible.
Pros & Cons of Living Trusts
We’ve rounded up the pros and cons of living trusts below.
- It will let you avoid probate, which is a very lengthy and expensive process that can delay distributions to your loved ones and decrease what they can inherit.
- It can help you save money in the long run.
- Because of its private nature, it won’t be part of the public record. This way, no one can find out about your estate or asset’s distribution.
- When you become incapacitated or ill, the trustee can manage your affairs without permission from the court.
- It will give you peace of mind and protect your assets from certain individuals.
- The paperwork needed is harder compared to making a will.
- The cost to initially establish it is huge.
- Some assets can’t be included in a trust, including properties that are owned jointly with somebody else such as a house.· Your heirs can contest it for a longer time.
Best Living Trust Services in the Philippines
The number of living trust service providers in the Philippines is enough to make your head spin. To make choosing easier for you, here are our top picks for the best living trust services in the country.
Security Bank Personal Management Trust
With more than seven decades of experience under its belt, Security Bank is one of the best living trust service providers in the Philippines.
They can assist in:
- Wealth transfer
- Wealth management and preservation
- Advisory services
- Revocable Personal Management Trust
- Irrevocable Personal Management Trust
Maybank Living Trust Account
Maybank is one of the largest companies in Southeast Asia.
Considering their great offers, it’s no surprise why they’ve achieved incredible growth in the past decades.
Cost: Php100,000, but an amount of Php500,000 or more is advised.
PNB Personal Trust Funds
Established as a banking institution in 1916, PNB is one of the oldest players in the country. It provides its clients with dynamic services that aim to enrich their lives.
- Revocable Living Trust
- Irrevocable Living Trust
BDO Wealth Protection & Distribution
BDO is a full-service universal bank with various services to different markets. Their highly trained team is focused on pleasing their customers and finding ways to make them satisfied.
- Estate Life Insurance Trust
- Professional Pension Trust
- Special Education Trust
- Other Special-Purpose Trusts
- Testamentary Trust
- Special Purpose Trust
- Legacy, Endowment, and Charitable Trust
Trust Fund FAQs
Here are some of the questions you may have about trust funds.
Most trust fund service providers in the country have a minimum limit of Php100,000.
The answer is different for everyone, but you should establish a trust fund if you’re keen on protecting your assets and properties from creditors, as well as untrustworthy people around you. Take into consideration how much you want to include in your trust, as well as your beneficiary. If you need help, don’t hesitate to contact a professional.
Of course. Just make sure the provisions of your trust specify that you can make additions or withdrawals anytime. You also have a right to cancel the trust anytime, as well as amend the trust agreement.
Most institutions need you to complete a form and provide two government-issued IDs.
The terms and provisions of your trust can be as complex or simple as you want them to be.