======Trust Fund======
A trust fund is a legal arrangement where a person, known as the [[grantor]] (or settlor), transfers ownership of their [[assets]] to a third party, the [[trustee]]. The trustee then holds, manages, and distributes these assets for the benefit of another person or group, called the [[beneficiary]]. Think of it as a secure financial container with a very specific set of instructions. The grantor writes the rulebook (the trust agreement), the trustee acts as the rule-enforcer and manager, and the beneficiary enjoys the contents according to those rules. This powerful tool is a cornerstone of [[estate planning]], allowing individuals to control their wealth even after they're gone, protect it from creditors, and ensure it's used wisely by future generations. It’s not just for the ultra-wealthy; a trust can be a practical way to manage property for minor children, support a relative with special needs, or make planned charitable donations.
===== How a Trust Fund Works: The Key Players =====
Understanding a trust is as simple as knowing the three main roles. Each has a distinct and vital part to play in the trust's lifecycle.
==== The Grantor: The Architect ====
This is the person who creates the trust. The grantor is the visionary who decides:
  * What assets (cash, stocks, real estate, etc.) go into the trust.
  * Who the beneficiaries will be.
  * Who will serve as the trustee.
  * The rules for how and when the assets will be managed and distributed.
==== The Trustee: The Guardian ====
The trustee is the individual or institution (like a bank's trust department) legally responsible for managing the trust's assets. They have a [[fiduciary duty]], which is a strict legal and ethical obligation to act //solely// in the best interest of the beneficiaries. Their job includes investing the assets prudently, filing taxes for the trust, keeping accurate records, and distributing funds according to the grantor's instructions. A good trustee is like a skilled ship captain, navigating the financial seas to protect and grow the cargo on board.
==== The Beneficiary: The Recipient ====
This is the person, group of people (like children or grandchildren), or even an organization (in the case of a [[charitable trust]]) for whom the trust was created. They receive the income and/or principal from the trust as specified in the trust document. The rules can be simple, like receiving a lump sum at a certain age, or complex, such as receiving funds only for specific purposes like education or healthcare.
===== Types of Trusts: Not a One-Size-Fits-All Suit =====
Trusts come in several varieties, each designed for different goals. The most fundamental distinction is whether they can be changed.
==== Revocable vs. Irrevocable: Can You Change Your Mind? ====
  * **[[Revocable Trust]] (or [[Living Trust]]):** This is the flexible option. The grantor can change the terms, add or remove assets, or even dissolve the trust entirely during their lifetime. A major benefit is that assets in a revocable trust typically avoid [[probate]]—the often lengthy and public court process for settling an estate. However, it offers little protection from creditors or [[estate tax]] because the grantor still maintains control.
  * **[[Irrevocable Trust]]:** This is the Fort Knox of trusts. Once it's created and funded, the grantor generally cannot alter it. In exchange for giving up control, the grantor gains significant benefits: assets in an irrevocable trust are typically protected from the grantor's creditors and are not included in their estate for tax purposes. This is a powerful tool for asset protection and minimizing taxes.
==== Living vs. Testamentary: Now or Later? ====
  * **[[Living Trust]]:** As the name implies, this trust is created and becomes active during the grantor's lifetime. Both revocable and irrevocable trusts can be living trusts.
  * **[[Testamentary Trust]]:** This trust is created within a will and only comes into existence after the grantor passes away. It's a way to provide for young children or other beneficiaries who may not be ready to manage a large inheritance on their own.
===== A Value Investor's Perspective on Trust Funds =====
For the value investor, a trust isn't just an estate planning tool; it's a vehicle for preserving and compounding wealth across generations, embodying several core investment principles.
  * **Enforcing a Long-Term Horizon:** Value investing is a marathon, not a sprint. A trust ensures this long-term mindset endures. The trustee can manage the portfolio with a focus on intrinsic value and long-term compounding, shielded from the emotional whims or short-term needs of beneficiaries that might otherwise derail a sound investment strategy.
  * **Preservation of Capital:** //"Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1."// A trust helps institutionalize this famous mantra. By placing assets in a protected legal structure, you safeguard them from potential lawsuits, creditors, or a beneficiary's financial missteps. This ensures the capital base you worked so hard to build remains intact to generate future returns.
  * **Promoting Financial Discipline:** Many trusts include a [[spendthrift provision]], which prevents beneficiaries from squandering their inheritance or using it as collateral for a loan. The trustee can distribute funds based on responsible milestones (e.g., for a down payment on a home or to start a business), encouraging the very financial prudence that value investing is built upon.
  * **Tax-Efficient Compounding:** A well-structured trust can be a highly effective tool for minimizing [[capital gains tax]] and [[inheritance tax]]. By reducing the tax drag on investment returns, more capital stays invested and working for the family, maximizing the power of long-term compounding.