What is a family trust, and how do you set one up?
Planning for what will happen to your wealth when you are gone can be a difficult thing to think about, but doing so now can benefit you and your family by ensuring your assets are protected and distributed the way you want them to be.
A family trust is an estate planning product that can help you legally determine who will get your assets when you die, and how much they will get. There are a variety of family trusts available depending on your needs and goals. A family trust can also protect your loved one from various additional costs or taxes if done correctly.
What is it?
A family trust is any trust you establish that benefits members of your family. It is often used as a legally binding agreement to establish who will receive portions of your wealth after you pass away.
This type of living trust can be revocable – meaning you can alter the terms or cancel it entirely – or irrevocable – meaning you cannot modify the trust without approval of those within it.
As with most trusts, there are typically three parties involved: the grantor, a trustee, and the beneficiaries. The grantor is the person who establishes and funds the trust. The beneficiaries are those who will receive financial assets from the trust. The trustee is the person responsible for managing the assets in the trust on behalf of the beneficiaries.
Why do you need a family trust?
If you have assets that you want to pass on to your loved ones after you are gone, then a family trust will legally ensure the assets are left on your terms.
A living family trust also ensures that your family will hopefully be able to avoid the sometimes painful, long and expensive process of probate. Probate is the legal process of distributing assets in an estate and usually occurs when the person who dies does not have a will, or their estate is larger than the state government’s limit. Taking care of the process now avoids the financial and emotional costs of the probate process during an already difficult time for your family.
How to set up a family trust
There are online options that can help you set up a family trust yourself however, since this is an important legally binding document, it is recommended to meet with an estate planning attorney or financial advisor to determine the best type of family trust for you and to ensure the trust is set up correctly, since there are many intricacies when it comes to estate planning.
After finding the appropriate professional to work with, you will need to explain to them your goals and wishes, as well as identify your beneficiaries and your trustee. For family trusts, the beneficiaries will be certain members of your family, but you can designate any trusted individual or entity as your trustee.
After identifying the involved parties, you will then determine how you want your assets split among your beneficiaries. Once the trust document is created, you’ll transfer the relevant assets into it. For example, if you’ll be leaving your home to a beneficiary through your trust, then you’ll transfer the home to the trustee by transferring the actual deed.
Since there are many moving parts to setting up a family trust, as well as legal and tax implications, it’s important to work with a qualified financial advisor or estate planning professional to ensure your trust is established exactly as you want it to be.