Comprehensive Guide to Family Trusts
This article provides a clear overview of family trusts, explaining their purpose, structure, types, and benefits. It highlights how establishing a family trust can protect assets, reduce taxes, and ensure financial security for loved ones. Suitable for estate planning, family trusts are an effective tool for both middle-class families and the wealthy. Learn about the different trust types, how they work, and their key objectives in safeguarding your estate.
Understanding Family Trusts
A trust is formed when a trustee holds property on behalf of another individual, providing benefits to that person. A family trust is a specific type of trust established to benefit family members.
The main goal of setting up a family trust is to transfer assets into it, meaning you no longer legally own the assets personally, though you can still enjoy their benefits. You can establish a family trust during your lifetime or through your estate plan after passing away.
The person creating the trust is called the grantor. The trustee, responsible for managing the trust, is usually appointed by the grantor. Typically, the grantor serves as the primary trustee, with a secondary trustee designated to step in if they become incapable. Family members are generally named beneficiaries of the trust.
Family trusts can be revocable or irrevocable. A revocable living trust is effective during your lifetime and can be altered or revoked at any time. An irrevocable trust, once established, cannot be changed, but it offers different protections. Most individuals prefer revocable trusts to maintain control over assets until death, after which the trust becomes irrevocable.
The trust document details the properties included, both tangible items and untitled assets. Titled assets like real estate and investment accounts are transferred into the trust, officially changing ownership.
A family trust serves multiple purposes, such as estate tax reduction with credit-shelter trusts, or skipping multiple generations with generation-skipping trusts. Examples include:
- Credit-Shelter Trust: Protects assets from estate taxes and maximizes estate tax exemptions, passing remaining assets to surviving spouses tax-free.
- Generation-Skipping Trust: Transfers wealth to grandchildren or great-grandchildren, useful for education funds or specific asset distribution plans.
