Family Trust -An Easy Guide to Understanding ThemShare this post
Understanding a Family Trust
A Family Trust is a good idea to ensure your legacy and benefits for your loved ones. It is a legally binding Estate Planning tool that’s set up to financially protect and benefit you and your family. The purpose is to establish a way for your family to reap direct financial benefits from your Estate Planning efforts. Trusts, by definition, are three-party relationships. There’s the grantor (the person creating the Trust), the Trustee (the person/people you name to administer the Trust) and the beneficiaries (the person/people who will financially benefit from your estate upon your passing).
There are several types of Family Trusts.
- Irrevocable Family Trust: A Trust that cannot be canceled or easily changed after you create it. The Grantor loses access to and control over assets once the Trust is funded. Irrevocable Trusts are often used for asset protection.
- Revocable Family Trust: Can be easily modified or dissolved anytime you decide to do so. These are flexible Trusts.
- Living Trust: A legal document that holds all your assets while you’re still alive. It also can explicitly detail your wishes for assets after you pass away.
- Marital Trust: Establishes that assets automatically pass to a surviving spouse upon the death of the first spouse. Once both have passed, the Trust then goes to designated beneficiaries.
There are pros and cons to Family Trusts.
PRO: AVOID PROBATE
One of the biggest advantages to any Trust is avoiding probate- which is a costly, time consuming and a stressful process for families to go through.
PRO: SIMPLE AND FLEXIBLE
A Family Trust can be simple and flexible from creation, all the way through funding and into the management. They are very accessible, easy and convenient to update or modify at any time (as long as they’re not Irrevocable).
PRO: LIMIT ESTATE TAX EXPOSURE (AND OTHER TAX BENEFITS)
PRO: AVOID LEGAL PROCEEDINGS
When the time comes for a Family Trust to be distributed, legal challenges will be virtually impossible. Trusts are – for the most part – legally airtight. With the right Trust, assets can be protected from the threat of lawsuit, bankruptcy, or divorce.
PRO: NO RISK TO PUBLIC BENEFITS ELIGIBILITY
Trusts allow any beneficiary who’s entitled to public services or benefits to keep their established eligibility without having to run down the value of an estate.
CON: POTENTIAL LOSS OF CONTROL AND/OR LACK OF FLEXIBILITY
If you choose to use an Irrevocable Family Trust, you do risk loss of control over your assets.
CON: WORKS BEST IF AN INDEPENDENT TRUSTEE IS USED
While an outside, independent Trustee can offer the most protection, this would result in limited control over assets.
Establishing a Family Trust can be a smart move for many reasons. If you’re thinking you want to create a protective Family Trust, now is the time to get started.