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Omolola Olorunnisola: Secure your Child’s Future Using a Trust Fund

A financially literate child will definitely be capable of handling whatever amount he/she will get from a trust.

Omolola Olorunnisola

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A secure future is every parent’s desire for their wards. A trust fund is one way of achieving that. A trust is a legal arrangement in which you transfer some of your assets to a trustee for the benefit of selected beneficiaries. The trustee manages the asset under the terms and conditions that you, the settlor, agrees with the trustee. While it is more important to teach children about money than handing them money, there is nothing wrong with giving them a head start. Setting up a trust fund will definitely give your kids that head start. We don’t want our children to deal with the same struggles we had, so why not teach them how to handle money and also give them some sort of soft landing? That way, you are assured they will have something to build on.

Although trust funds are common among high net worth individuals, regular everyday people can also set up trusts. Trust funds serve different purposes, the common ones are education trust funds, charity trust funds, and child trust funds. An education trust is set up to cater to the educational needs of the beneficiaries of the trust. The settlor moves some assets or funds (worth at least N500,000) to the trustee to manage and the trustee, in turn, pays out funds directly to the school when fees are due.

This type of trust is flexible as it allows you to make regular contributions to the fund and the trustee invests the funds in conservative investment vehicles. Typically, the trustee does an estimation of the beneficiary’s total school fees and then both the trustee and the settlor will work out a contribution plan.

A charity trust fund is set up mainly for charity. This fund, at regular intervals, gives money to charity organisations based on the agreed terms with the settlor.

A child trust fund is set up to transfer a portion of a settlor’s wealth to his/her children. When setting up a trust fund, here are a couple of things to consider:

Choose a Trustee

While some may choose a close relative or family friend as their trustee, it is best to use an established investment bank that offers trust services. It is unwise to leave your hard-earned assets and the fate of your dependents in the hands of an individual. We’ve all heard stories of how some ‘uncles’ took over properties they had no right to. An established trustee is more reliable and qualified to handle such responsibilities.

Decide on the Terms of the Trust

Here is where you get to decide when and how you want your child to benefit from the trust. Most living trusts (a trust set up to function when the settlor is still alive) are revocable, meaning you can tweak the terms and conditions of the trust at any time. You can decide to release the funds to the child in a staggered form; some of the funds can be released to the child when he/she turns 18, another round of funds can be released at 25, again at 35. It all depends on how you want it.

Move Funds/Assets to the Trust

After the trust deed has been signed, the next thing to do is to move funds to the trust account or transfer assets to the trustee. Note that if assets, like real estate, are being transferred to a trust fund, the deed of the property will have to be amended to reflect that the property is now under a trust.

Again, I will like to emphasize that it is more important to teach children about money than hand them money. A financially literate child will definitely be capable of handling whatever amount he/she will get from a trust. A number of billionaires had some form of monetary support from their parents. Besides, a child trust fund ensures that your wealth is transferred to the next generation.

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Photo by nappy from Pexels

Omolola Olorunnisola is the lead consultant at BullsnBears Markets, a financial consulting firm that specializes in providing financial advise and helping individuals build profitable investment portfolios. You can reach her via this email address [email protected]

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