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Using your trust fund to finance your business, good or bad idea

Trust funds have all sorts of laws and regulations that they must follow, from both the state they are created in and the federal government. The most common type of trust fund is from inheritance money, parents set up a trust fund for their kids so that in case something happens to them the child will be provided for. Parents also set up trust funds so that their children can finance their education. You can also see trust funds that are set up by wealthy people for their children to get a certain amount at a certain age to do with as they see fit. Regardless of the situation that is set up trust funds is money that you have earned and put aside to provide for somebody in the future.

How a trust fund works is that you give a banking institution control over the money, which means they are the trustee, but you get to decide who the money is given to by assigning a beneficiary. When you are creating a trust you will need to create a document in writing the specifies how much money a person gets a year or if you want them to have a lump sum after reaching a certain age. You can also decide how that money should be spent you can put provisions in the trust that state it can only be spent on educational needs, to support your spouse or kids, etc. You can basically fine tune a trust to however you see fit by putting it down in writing. Your trust will be invested into stocks or bonds as you see fit so be sure to state where you want your money invested.

Now we come to the question of whether or not you should use your trust fund to finance your business. Using a trust fund to finance the business can be a good idea because you already have the money available to invest in your company. But one thing you need to think about is the tax laws that can affect your trust, which usually the Federal government allows an amount of $650,000 to be left to your beneficiary without having to pay any taxes. Most companies will not need that much start up cash so you should be able to withdraw the amount needed to finance your business without having to pay taxes on it.

Another thing you need to think about is how your trust is set up, if you are not given a lump sum you are probably receiving a yearly allowance or monthly allowance from your trust and might not be able to take out any extra money. So if you invest your entire allowance from the trust into your business you probably will not have any money to pay bills and survive with until your next allowance or your business starts making money. If you are working another job and are using the trust to supplement your income then investing that money into your business would not be as risky because you could still survive.

And finally you should think about what happens if your company does not survive and has to file bankruptcy you will never get the money back that you have invested from your trust. Even if you do not have to file bankruptcy and your business goes under you are still going to lose that money. But on the positive side if your business does do well you can pay back the money that you took out of your trust to fund the business.

So using a trust fund to finance your business can have its benefits, it can also have some serious drawbacks. So before deciding if you want to use a trust fund to finance your business you might want to take to a business advisor for other options.

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