Your family is not just your own. Bringing up children can be difficult, especially when you have to protect your spouse and each other from the financial hardships of life. So why not use a trust fund to ensure that family members are taken care of and protected? This article explores how these trusts work and whether you need one.
What Is a Family Trust?
If you’re not aware, a family trust is essentially a legal document that allows the owner to decide who the beneficiaries will be to give them the money or assets included in their estate plan. This can be useful if, for example, a parent knows that their children will find themselves in financial hardship when they get older and want to avoid this.
Two Types of Trusts
A revocable trust, where the owner can change the beneficiary of their estate upon death. A testamentary trust, where the trust’s founder is the executor, and when they die, someone else will take over and distribute any assets according to the instructions in writing. This is ideal if you don’t have time to create complete trust and would rather have an adviser do it so that you can focus on other things.
An irrevocable trust is also known as a living trust. It provides a similar level of protection as the revocable trust in that the guardian acts on your behalf until you die, but there many other benefits to using an irrevocable trust. For example, this type of trust is tax-exempt and can protect the money invested from creditors.
The Perks of Family Trusts
Avoid Death Duties
If you’re worried about your family having to pay death duties when you die, a trust can help. After all, this is a tax that involves a portion of the deceased’s estate being paid directly to the government and is not within the control of their beneficiaries. With an estate plan in place, your beneficiaries can take over running things and avoid incurring these charges.
Choose Who Your Beneficiaries Are
Many people use trusts to protect family members who they feel would struggle to cope with the responsibility of managing their own money. But if you think one of your children is responsible enough or doesn’t want them to inherit everything, you can pick another family member instead.
If you’re unsure whether a family member can handle a large amount of money, using a trust with a clause to reduce the amount due may be your best option.
Holds the Beneficiaries’ Interests in Trust
It’s worth bearing in mind that while you set up a trust, it’s not you who is going to be the one to manage it. The trustees will look after your wishes and do what they think is best. This can influence their decision-making because they may be more aware of their responsibilities.
You Know Your Money Is Secure
If you don’t trust your family member to manage funds wisely, a trust can be a useful way to ensure that they have a backup plan in place if anything goes wrong. With this kind of protection in place, they don’t have to worry about their inheritance or what will happen to their family when they die.
The Beneficiaries Are Protected From Creditors
If a creditor were to make an unauthorized charge or claim against the assets in your estate plan, it could damage your family’s reputation. Using a trust can help to protect their reputation by making it harder for creditors to trace them down, as they’d have to search back through the trust instead.
Avoid Probate Court
Going to probate court can be time-consuming and expensive, and it ends up meaning that the beneficiaries have to wait a long time before they receive the money or property. In some cases, even the people who set up their estate plans can be unable to avoid Probate Court.
A trust is much less likely to end up in court, so if you’re looking at ways to reduce any potential issues your beneficiaries might face, this is an option worth considering.
Leave a Legacy
If you have a particular cause you would like to help out with, setting up a trust can be a good way to ensure that your legacy lives on. The money in the trust will be used for your intended purpose. For example, if you would like to pass on your love of gardening to your grandchildren, this is a worthwhile option.
The Bottom Line
Trusts can be an important part of any estate plan. With professional legal advice, you’ll be able to ensure that your family is looked after and protected for generations to come. Contact our Pacella Law Group probate solicitors in Calabasas to discuss any aspect of your will. We’ll ensure your legacy is upheld in the best possible way.