A Family Trust Keeps Assets in the Family
If you’re like most people, your family is the most important thing in your life. It might be just you and one other person, or you might be part of a close-knit crew of dozens – whatever its makeup, your family is everything. Naturally you want to make sure your relatives are taken care of, even after you’re gone. Creating a family trust is one strategy that accomplishes that goal, and makes sure that everything you’ve worked to acquire stays right where you want it: in the family.
What’s a Family Trust?
In the most general terms, a family trust is simply a trust that is used to provide for beneficiaries who are all related to the grantor (the person who creates the trust). Anyone related to the grantor, whether biologically or not, can be listed as a beneficiary. While it’s common for grantors to set up trusts for the benefit of their family members, establishing a family trust is an explicit way of passing assets on to relatives.
Like all trusts, a family trust is used to protect assets and make sure they’re passed on in keeping with the grantor’s wishes. One of the primary reasons for establishing a family trust is to minimize estate taxes on the grantor’s money and property. If the grantor is the owner of the family home or a beloved vacation house and wants to make sure that ownership stays within the family, putting the house in a trust is one way to do it.
(It’s important to note that a family trust can also mean different things in different places and different contexts; for example, in Australia a family trust is a tool often used by small family-run businesses. Wealthy families may also have family trusts that are used for charitable giving and business purposes.)
How Does a Family Trust Work?
When we talk about family trusts, we’re often talking about revocable living trusts – those that can be easily changed as long as the grantor is alive. A revocable living trust can be used to avoid probate, and to protect and distribute assets to the family members who are named as beneficiaries. The assets held in the trust remain the property of the grantor and are part of the estate until he or she dies, at which point the trust automatically becomes irrevocable and the trust property may be distributed to the grantor’s beneficiaries. Usually that’s the surviving spouse or the grantor’s children.
The specifics of how trust property is distributed, however, are dictated by the grantor. The grantor has leeway to name the terms of the trust. This person may decide who will control the assets held in the trust and establish milestones that beneficiaries must meet to receive property. One grantor may decide that her beneficiaries will receive assets when they turn 18, while another may dole out portions of the assets on beneficiaries’ 30th and 40th birthdays. A grantor may also stipulate that trust assets be used to do things like pay for beneficiaries’ educational expenses. The ability to control how and when assets are distributed is a significant benefit of this type of trust.
Creating a family trust is also a way to ensure that property is passed within the bloodline and not shared with people who join the family through marriage. If a beneficiary dies before the grantor does, the beneficiary’s share would pass to his or her children, not to a spouse. This protection may keep family property from being lost in divorce. It also assures the grantor that, if their surviving spouse remarries, trust property won’t be passed to the new spouse.
Finally, family trusts are used to maintain privacy around the family’s assets. Because the family won’t have to go through probate when the grantor dies, the details of what’s included in the trust and who receives what won’t become public record. Not only does keeping these details private protect the beneficiaries, but it also prevents squabbling within the family – no distant cousins can come try to claim part of the estate when they don’t even know what it’s holding!
Establishing a family trust can be an act of generosity and a way to protect your legacy. Contact Ladimer Law with all your questions about estate planning and creating a family trust.