Bare Trust
A bare trust is a basic trust in which the beneficiary has the absolute right to the capital and assets within the trust, as well as the income generated from these assets.Trust assets are held in the name of a trustee, who has the responsibility of managing the trust assets prudently so as to generate maximum benefit for the beneficiaries or as lawfully directed by beneficiaries or the trust's creator. However, the trustee has no say in how or when the trust's capital or income is distributed.
Custodial Fund
Definition
A custodial fund is a basic trust where the beneficiaries have absolute rights to the capital and assets within the trust, as well as the income generated from these assets. The trust assets are held in the name of the trustee, who is responsible for prudently managing the trust assets to maximize the benefits for the beneficiaries or distribute the trust's capital or income according to the lawful instructions of the beneficiaries or the trust creator. However, the trustee has no say in how and when the trust's capital or income is distributed.
Origin
The concept of custodial funds originated in medieval England, where landowners would entrust their land to trustees to ensure that their heirs could benefit from the land's income in the future. Over time, this concept evolved and expanded to include other types of asset management.
Categories and Characteristics
Custodial funds can be categorized into several types, mainly including:
- Fixed Trust Fund: Beneficiaries receive income at predetermined times and amounts, with the trustee having no authority to adjust the distribution.
- Variable Trust Fund: The trustee can adjust the distribution of income based on the beneficiaries' needs and the performance of the trust assets.
The main characteristics of custodial funds include:
- Clear Beneficiary Rights: Beneficiaries have clear rights to the trust assets and their income.
- Significant Trustee Responsibility: Trustees must manage the trust assets with the beneficiaries' best interests in mind.
- Legal Protection: The trust relationship is legally protected to ensure that trustees fulfill their duties.
Specific Cases
Case 1: A wealthy family establishes a custodial fund to ensure that their children receive stable financial support upon reaching adulthood. The trustee manages the fund's investments and distributes income to the children at predetermined times and amounts.
Case 2: A charitable organization sets up a custodial fund to support the education of underprivileged students. The trustee adjusts the funding amounts flexibly based on the students' needs and the fund's performance to ensure the fund's continued impact.
Common Questions
Q: What is the difference between a custodial fund and a regular trust?
A: Beneficiaries of a custodial fund have absolute rights to the trust assets and income, whereas beneficiaries of a regular trust may not have such clear rights, and the trustee may have more discretion.
Q: Can the trustee change the distribution method of the trust?
A: The trustee must distribute according to the trust creator's instructions or legal requirements and cannot arbitrarily change the distribution method.
