A family trust is one of the most commonly misunderstood tools used in estate planning. Many people who would benefit from the advantages offered by a trust never pursue that option because they don’t understand how a family trust works.
To keep you from missing out on the advantages of a family trust, let’s dive into the specifics of this powerful estate planning tool.
What Is a Family Trust?
When you set up a family trust, you legally transfer your assets to a third-party legal entity, the trust. The trust then holds those assets until a time that you designate (usually your death or incapacitation) and then distributes them according to your specific wishes.
This aspect of trusts is an area that causes considerable confusion, so let’s be clear: placing your assets in a family trust does not prevent you from using those assets as you see fit while you’re still alive. While the trust is the legal holder of your assets, you still have complete freedom to control those assets as long as you’re able.
Who Is Involved in a Family Trust?
When setting up a trust, you (the grantor) will name one or more trustees and beneficiaries. The trustee(s) can be a family member, friend, colleague, or even a bank or financial institution. They are the ones who will be responsible for ensuring that your assets are distributed to your beneficiaries according to your wishes.
What are the Benefits of a Family Trust?
- Avoidance of probate. Unlike many wills, trusts do not require the involvement of the probate courts since all distributions are clearly and legally established when the trust is set up.
- Avoidance of challenges. Trusts are legally binding and unambiguous, providing no room for challenges to the distribution of your assets.
- Reduced tax liability. Trusts largely avoid costly estate taxes for your surviving family members.
- Relatively speaking, trusts are simple to establish and maintain.
- Placing your assets in a trust ensures that your wishes will be followed to the letter after your death, and you retain the ability to change or revoke the trust at any point during your lifetime.
What Can Be Placed in Trust?
Almost any asset can be placed in a trust for dispersal following your death, including:
- Real Estate
- Personal Property
Retirement accounts and other continuing income may also be placed in a trust but require special consideration, so consult an expert when dealing with these kinds of assets.
How Do I Set Up a Trust?
While there are online options and even free resources to help individuals set up trusts of their own, the best and safest way to establish a family trust is to work through a legal expert who can offer you guidance and trustworthy advice on asset management, legal landmines, and other legal considerations to setting up a trust.
Your legal advisor will review your assets and help you make the right decisions for you and your family. You can then continue enjoying life, knowing that your loved ones will be cared for following your death.