Friday, October 7, 2011

What is a trust fund?

A trust fund is basically a bank account with a babysitter.

Let's say you have three friends: Carl, Henry, and Mike.

-Carl's parents are rich and they give him a lot of money
-Henry's parents are poor so they don't give him any money
-Mike is a very honest and trustworthy guy. Everyone knows Mike would never steal from his friends.

Carl is a very nice person and wants to help Henry by giving him $60. But Carl is afraid that if he gives all of the money to Henry that Henry will blow it all on stuff he won't need like candy. What Henry needs it for is lunch money for the rest of the school year. Carl is a very lazy person because he never had to work for anything, so he doesn't want to slowly give Henry money by himself. So Carl gives the money to Mike to give it to Henry.

It is called TRUST because Carl TRUSTS Mike to give the money to Henry and not steal. The money is called the Trust Fund because money is the whole point of the trust. Everyone benefits from this trust fund. Carl gets to be a good person without any work, Henry gets the money he needs, and Mike benefits because he'll loan the money he hasn't given out yet to other kids and they'll pay him back with interest, which he gets to keep.

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