The following is a guest post from Andrew Martin. Also check out his guest post from last week entitled, Should Everyone Make Out a Will?
If you have amassed a sizable amount of property and assets during your life, you will want to take the necessary steps to ensure everything is passed along to your loved ones according to your wishes. There are several ways to accomplish this, and the right option for you will depend on your unique financial circumstances. One option that you may want to consider is a family trust.
A family trust, also called a revocable living trust, is a legal document that establishes a protocol for how your assets will be handled once you become incapacitated or die. This option is particularly advantageous for wealthy individuals since it allows you to protect your assets and reduce the tax liabilities of your beneficiaries.
How Does a Family Trust Work?
When you create a family trust, you will appoint an individual to serve as the trustee. The trustee will take control over the assets in your trust at the time of your death or if you become incapacitated and can no longer manage them yourself. Make sure you choose someone who is both trustworthy and capable of handling this important responsibility. Your estate planning attorney can help ensure your family trust clearly spells out the responsibilities of the trustee and provides for a smooth transition of your assets to your heirs.
It is important to understand that your trustee cannot do whatever he or she wants with the assets in your family trust. The trustee must follow the guidelines you have set up in the terms of your trust.
Once your family trust has been created, you can move any of your assets and property in and out of it as you wish. Transferring your assets into a family trust is a fairly straightforward process, and your estate planning attorney can help ensure it is completed properly. Since the trust is revocable, you maintain full control of all the assets in the trust until the point that you become unable to do so due to disability or death.
Who Should Consider a Family Trust?
A family trust may be an ideal estate planning option if you:
- Have young children and need to ensure their inheritance will be handled properly and responsibly until they are old enough to manage it for themselves
- Have children from a prior marriage and want to protect their inheritance from going to your current spouse in the event of a divorce
- Would like to minimize the estate taxes imposed on your estate when you die
- Would like to protect your loved ones’ inheritance from the risk of being seized by creditors, during bankruptcy proceedings, or in a lawsuit
- Own property in multiple states and would like to avoid the time, hassle, and cost of multiple probate (the legal process that happens after death) proceedings after you die
Benefits of a Family Trust
There are many benefits to placing your assets in a family trust. It can:
Tax Benefits of a Family Trust
When set up properly, there are significant tax benefits associated with a family trust. You can substantially reduce or potentially avoid entirely the estate taxes imposed on inherited property. If you have a very large estate, this can potentially save your loved ones hundreds of thousands of dollars.
It is important to understand that estate tax laws change periodically. In order to ensure your family trust is set up in a manner that maximizes these tax benefits, you will need to work with an estate planning attorney who is current on the federal tax regulations governing these trusts.
Choosing a Trustee
If you decide to create a family trust, you should put a lot of thought into who you choose as your trustee. This person should be someone you completely trust. In addition, this person should be fairly savvy regarding financial matters. This is extremely important since the trustee will be responsible for investing your assets as stated in your trust.
In most instances, you will want to choose a close family member. This is commonly a spouse or a child. However, if you feel a different person such as a sibling or a close friend would be more qualified to handle these important functions, then choose the most qualified person.
If you don’t have a family member or close friend whom you trust to perform this job, then you may want to consider appointing a professional trustee. However, this should be a last resort since professional trustees will need to be paid for their services and in many instances, this will give them an incentive to drag out the proceedings.
Andrew Martin is a professional writer with over five years of experience writing legal copy. He is also a musician and regular contributor to the Marquee Magazine, an online and print publication covering music in the Boulder and Denver area.