Legal Identity

• A trust fund is a legal identity given to assets that are grouped together and held for the benefit of one or more persons or other legal entities. A legal identity is evidenced by a tax identification number. People, corporations and trusts have separate tax identification numbers because they are all legal entities. A pension fund is a trust because it is a collection of assets held and managed for the benefit of a group of people. Not all trusts are pension funds, but all pension funds are trusts.
  
  

Taxes

• A group of people who contribute money to a fund that benefits them all in some way are creating a legal entity when they prepare to open a bank account. They agree to certain rules under which the money is to be kept safe and managed for the benefit of all. This legal agreement results in the forming of a trust -- the legal identity of the money fund. Because the trust contains money that is to be managed in such a way as to make more money, income is involved and a tax identification number is assigned. Trusts pay taxes, just like any other legal entity.
  
  

Purpose

• Trust funds have different purposes. Some are formed to legally bind the assets of a family so they can be more easily transferred at death, and these are called living trusts. Other trust funds operate to provide investment income to individuals or charitable foundations. Pension funds are trusts that operate in this manner. Their purpose is to take the contributions of their individual members -- combined with employer contributions -- and put them under professional portfolio managers who invest the money to earn the highest return possible, while maintaining safety of principal and timely interest payments.
  
  

Fiduciary

• The fiduciary for a pension fund is generally a bank or investment management company. Fiduciaries are tasked with the prudent management of the money and monthly reporting of the condition of the assets held in the trust. The monthly reporting indicates whether the trust has made or lost money and what has been bought or sold since the last reporting. Fiduciaries report to the trust administrators, who then report to the trust beneficiaries, or pension recipients.