Estate planning now will help loved ones and ensure that assets are protected and distributed according to your wishes, explains a recent article, “What is a family trust, and how do you set one up?” from USA Today. A trust is regarded as one of the best estate planning tools to accomplish this goal.
A trust is a legal agreement in which one or more persons, known as the trustee, manage assets for someone else’s benefit, known as the beneficiary. For example, family trusts are created to transfer assets to family members.
The family trust is a written document created to control the disposition of assets held in the trust during a person’s life, incapacity, and death. The directions for who will be in charge of managing the assets and how, as well as who will receive financial benefits from the trust and when, are all in the language of the trust.
There are several parties involved in the trust:
- The grantor or settlor—the person who establishes the trust.
- The trustee who administers the trust, following the directions in the document
- The beneficiary or beneficiaries who receive financial benefits from the trust.
Each of these roles may include more than one person. For example, the trustee could be a financial institution, and the beneficiary could be a charity. Typically, the people involved in a family trust are family members, including children, parents, or cousins.
It’s essential to name successor trustees in case the primary trustee dies or cannot manage the trust when they are needed.
Family trusts may be revocable or irrevocable. In a revocable trust, sometimes called a living trust, the grantor can alter the terms of the trust as often as they wish during their lifetime. However, the trust becomes irrevocable upon their death and cannot be changed.
The grantor in a revocable trust is often the trustee, giving them full control over the trust, including the ability to change the disbursement rules or beneficiaries.
The irrevocable trust is set in stone and cannot be easily changed once established.
Why would you prefer an irrevocable trust? The irrevocable trust offers several protections not available to the revocable trust. For example, the irrevocable trust shelters assets from estate taxes, assets are not considered part of the grantor’s estate and assets are protected from creditors.
There are numerous types of family trusts. An experienced estate planning attorney will be able to review your situation to determine which offers the most protection for you and your loved ones.
Reference: USA Today (May 25, 2023) “What is a family trust, and how do you set one up?”