A trust is a legal document drafted to insure that specific wishes of the "grantor" (the person funding the trust) are met. The documents should be drafted by an attorney and meet the guidelines of the state in which you live.

Trust funds for children are often referred to as "education trusts." This legal document generally appoints a trustee to manage the investment assets for a minor child. The document also states when the corpus of the trust will be released to the child. One major benefit for this document is that the remaining proceeds in the trust are not released in full to the child on the day they reach their age of maturity. Money in this trust can be dispersed in a manner that meets the wishes of the grantor. It will cost you between $700 and $1,500 to draft this document (depending on its complexity) and the trust will be required to file its own tax return, as well. Some mutual fund companies have designed "trust funds" which may meet your needs at a much lessor cost.

Often times, individuals waver between establishing an education trust or a custodial account. Money held in a custodial account must be released to the child on the day they reach maturity (age 21 in most states). That means that even if your intentions were to use the money to pay for "Johnny's" education, on his 21st birthday, he could cash in balance of his account, buy a motorcycle, and travel the world – without your consent. There are other reasons to consider using or not using custodial accounts but we will save that for a later issue.

-- Answered by Marc Freedman, certified financial planner, Freedman Financial Associates, Inc.

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