Law & Legal & Attorney Wills & trusts

An Overview Of How A Child Trust Fund Works

A trust is a legal agreement where one party places assets in someone else's care so that they can later distribute them to a third party.
There are many types of trusts but essentially there are four main elements.
The trust is created by the grantor, also known as the trustor.
A second person or an agency such as a trust company then takes the role of the trustee agreeing to hold the grantor's assets for a third party.
The third party is the beneficiary of the trust.
This is the person to whom the assets will eventually find their way.
The title of beneficiary can be held by more than one person at once.
The fourth element is the actual act of holding the assets, whether it be money or property.
These assets are called the principal of the trust.
The amount of money can change over time and the trustee's role is to decide how these assets can be best used to the benefit of the third party.
Whether these assets are spent, loaned, invested or saved, they are collectively known as the 'trust fund.
' A variation on the trust fund principle is a UK government initiative known as the child trust fund.
Essentially it is a scheme to encourage saving with every newborn baby receiving 250 pounds, or for lower income families 500 pounds, which can be invested tax-free and made available to the child once they are eighteen years old.
Alone this is unlikely to result in a particularly massive pay out but family and friends will be allowed to add up to 1200 pounds per year in additional investment.
Any income arising from these contributions will also be tax free which raises the potential to build a meaningful sum over the duration of the fund.
Far more children will in theory now be able to make use of a lump sum that could potentially be put towards expenses like university fees.

Leave a reply