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Most trust funds that were established to shelter funds from the need
analysis process do not work. For example, some families set up a
trust fund for their children that restricts access to the principal
until the children are past their college years. Unfortunately, this
backfires, since the trust fund gets treated as an asset even though
the children don't have access to the funds. The major exception is
involuntary trust funds set up by a court, such as a court-ordered
trust fund to cover future medical expenses.
The design of a trust can make it difficult (but not impossible) to
calculate its value as an asset. Basically, one has to identify the
current value of all the child's expected future payments of interest
and principal from the trust. If all of the principal and interest
earned by the trust is eventually granted to the child, and the
interest rate is the same as the inflation rate, the
calculation is simple: it is the current value of the trust's
principal. But if the trust gives the student only the principal
several years from now, or gives the student only interest payments but
never the principal, or the interest rate is not the same as the
inflation rate, the current value of the trust depends on a net
present value calculation.
This calculator performs a net present value calculation for the most
common types of trust funds.