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How Limited Term Trusts Work


Not just for the wealthy anymore: Trust funds can protect your assets from risk.
Not just for the wealthy anymore: Trust funds can protect your assets from risk.
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Do you know a so-called trust fund baby? Perhaps this person inherited money but doesn't know how to manage it effectively. Pop culture is rife with wealthy individuals and celebutantes who shape our assumptions about trust funds. But these assumptions can cloud our understanding of this valuable financial tool.

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Trust funds aren't just for the very wealthy. On the contrary, a trust is a flexible financial option that can protect any individual's or family's assets. A limited-term trust is one type of trust that's created for a specific number of years.

Let's remove the mystique of the trust fund. A trust is simply a legal relationship, drawn up by a lawyer to serve a specific purpose. The grantor is the creator of the trust. In a limited term trust, the grantor's goal is to protect his or her assets: property, estates, savings, or investments. By placing the assets in a trust, the grantor gives a third party or trustee temporary ownership of the assets. The trustee -- an individual person, bank, or professional trust company -- manages the assets in the trust. The grantor also names beneficiaries of the trust. The beneficiaries will receive disbursements from the trust at set intervals, which the grantor decides.

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Think about the trustees of a college or university. They're chosen by alumni and administrators (the grantors) to serve the college and its students (the beneficiaries). The college's trustees are charged with making decisions for the development and the betterment of the institution. A financial trust is very similar. Trustees handle the day-to-day management of the assets in the trust, protecting the grantor's assets during the term of the trust, whether that's for 25 years or for life.

Discover how limited-term trusts can protect individuals in high-risk jobs.