Question

Identify the different types of trust funds and explain the purpose of each type.

Answer 1

There are many different types of trust funds. For reporting purposes GASB classifies trust funds as investment trusts, private- purpose trusts and pension trusts(also referred to as pension and other employee benefit trusts). An investment trust fund is used to account for and report the fund equity held by fund participants who are external to the government operating the fund. Private- purpose trust funds record and report principal and/ or interest managed by a government for the benefit of an individual, private organization or another government. The distinguishing characteristic is that the party benefiting from the trust must be external to the government operating the trust. In pension and other employee benefits trusts a government is managing benefits that belong to government employees. As seen, in each case the government is acting as a fiduciary, or in the best interest of parties outside the government.