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Essence and purpose of a trust fund

Joy Kareko

Trust funds have become increasingly popular because of death or other unfortunate occurrences. The trust concept is not new. It started centuries ago in monarchies. In cases where minors were primed to inherit the throne, a regent — a person appointed to administer a state because the monarch is a minor — would be appointed.

That was because minors were presumed incapable of making sound decisions  expected of a king. That is still applies today. Children are practically incapable of making the right choices concerning money and assets left by parents or guardians.

Trust funds are vehicles that ensure the purpose for which assets were set aside is met. The assets can be real estate, livestock, cash, stocks, pension and any other valuables bequeathed to a minor in a formal will.

However, in pension schemes, nomination of beneficiary forms act as a guide for use by the trustees since pension funds do not form part of the estate of the deceased.

Trustees of pension funds, therefore, have a fiduciary responsibility of ensuring the funds they hold in trust are utilised in accordance with their mandate as set up in the scheme trust deed and rules. Despite this, it becomes confusing when a member of the scheme passes on and has left minors behind.

Although trustees have the discretion on how to distribute funds, especially where the deceased may have omitted some dependents knowingly or otherwise, it would be best to ensure the funds are distributed according to wishes of the deceased.

In case there are minors, the funds should be set aside as a trust to meet obligations such as upkeep and school fees. But once the children come of age — with the approval of the trustees — the remaining funds can be released to them.

Trustees of an already existing scheme can opt to set up a trust fund or a scheme which can have a pool of trusts being managed professionally by a team of service providers such as a fund manager and a custodian who is a bank if necessary. This ensures transparency in the transactions of the fund.

These service providers report to trustees on the scheme’s performance and other functions. However, bearing in mind the costs of setting up and maintaining a trust, trustees can opt for already existing trust funds in the market. A pool of trust funds would  save in costs while maximising returns.

Although Trustees can opt to continue managing funds on behalf of the minor, having the funds managed in an established trust is often easier. This has to be done through the consent of the guardian. Well set up trust funds ensure that fees are paid on time, funds are continually invested and good returns realised.

In order to curb misuse of funds, trustees of trusts ensure information such as school fees structures and upkeep justification is provided. This is usually meant to curb the risk of improper funds utilisation resulting in depletion of assets that are supposed to last for a long time.

Lastly, trustees need to have members of their schemes have their Nomination of Beneficiary forms updated in the event that major life changes occur such as divorce, marriage, adoption, birth and even death of an already nominated beneficiary.

Once a member joins a scheme or exits, their forms should be updated to ensure that the trustees have correct information about the member. —The writer is a pension consultant at Enwealth Financial Services Ltd

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