Is a Family Trust Right for You?

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:

  • Help you avoid probate after you die
  • Allow you to maintain control of your assets throughout your life so that you can use them as you like
  • Prevent the courts from controlling your assets if you become incapacitated
  • Allow you to change the beneficiaries of your assets at any time
  • Reduce your estate tax liability
  • Set up health powers of attorney and make your healthcare wishes clear in the event that you become incapacitated
  • Provide legal protection of your assets, ensuring they pass to your beneficiaries according to your wishes
  • Significantly reduce the amount of time it takes to settle your estate after you die
  • 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.

    Bio:

    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.

    14 thoughts on “Is a Family Trust Right for You?

    1. A Frugal Family's Journey

      Although it takes money and time to get one, having gone through the process, I say it is worth it. My wife and I can now sleep well at night knowing that should something happen to us, our wishes will be carried out as we chose. No arguments among the survivors because pretty much everything is laid out in our trust, including our medical wishes.

      In addition, as noted in your article, just the tax benefits alone more than offsets what it takes for one to prepare a trust.

      Great write up…thanks for sharing. AFFJ
      A Frugal Family’s Journey recently posted…Retirement Accounts (Update) – June 2014My Profile

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    2. EL @ Moneywatch101

      I see the value in having a trust, I have one concern and that is anytime you want to make a change to it, you have to go through the attorney. (It can get costly) I know having the right peace of mind outweighs costs. I wonder what age or begining net worth would be best or optimal to set up the trust?
      EL @ Moneywatch101 recently posted…An Oath To Father’s DayMy Profile

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      1. livingrichcheaply@gmail.com Post author

        That’s a good point, and probably one of the reasons why I haven’t had one done.

        Reply
      1. livingrichcheaply@gmail.com Post author

        I’m not that familiar with them, but I would think that having a bank as a trustee is probably a good idea. You want to have professional management of the trust. If you choose a family member, there might be a conflict of interest and possibly other issues that may arise. This article seemed pretty helpful http://www.fromholdjaffe.com/resources/articles/wills-trusts-estate-planning/why-should-i-consider-a-bank-as-a-trustee-of-my-trust/

        Reply
    3. Michael Haslam

      Hey!

      Amazing share.

      If you’ve ever thought about a living trust, it’s probably because you hate the idea of going through probate. Setting up a trust is easy and inexpensive too.

      Thanks for sharing the post.

      Keep doing this great work!

      Reply
    4. Pearlie S.Gilligan

      Great read.
      Absolutely agree with this post.
      The family trusts are used for transferring the legal ownership of assets. The person who creates the trust is a settlor. The settlor transfers his ownership rights over various assets, typically property, investment portfolios and cash, to the trust. The settlor can also be appointed as a trustee. I think one of the major benefits of family trusts is to protect the assets from claims and creditors. And thanks for this post.
      Pearlie S.Gilligan recently posted…How to Place Conditions on Assets Your Beneficiaries ReceiveMy Profile

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