What Do I Need to Know about a Family Trust?

A trust can be used to manage estate taxes, shelter assets from creditors and pass on wealth to future generations. A family trust is a specific type of trust that families can use to create a financial legacy for years to come. There are several benefits to creating one, although not every family necessarily needs one. If you’re curious about where this type of trust might fit into your family’s estate plan, here’s what you need to know.

Please Share!

Share on facebook
Share on twitter
Share on linkedin
Share on email
Family trust

A family trust is a document that is created for a specific purpose.  Usually this is done when families decide to share property ownership among siblings or relatives.  This kind of arrangement may either lead to family harmony or family discord, depending on how it is structured.  A brief explanation is in Yahoo Finance in its article “What Is a Family Trust and How Do You Set One Up?”

Often a trust of this kind is organized as a part of a client’s estate plan.  The client will say something like: “my family always has enjoyed the property on Cape Cod and we have a lot of great memories there.  When I die I want everyone to share it.”  Although this is a laudable goal, the details can be troublesome.  To avoid misunderstandings and ensure the smoothest operation of the property, details must be worked out.  For example, who is responsible for paying the taxes, bills and coordinating upkeep?  What if your brother and sister both want to use the property on the same weekend you had planned to have work done on the house?  What is a sibling [and co-owner] fails to pay their share of the upkeep, taxes and insurance?

The three parties involved in a trust arrangement are the grantor, the trustee and the beneficiaries. The grantor is the person who creates the trust and transfers his or her assets into it. The trustee manages the assets in the trust for the beneficiaries. The beneficiaries get some type of financial benefit from the trust. With this form of trust, it is possible for family members to be beneficiaries, but an even more sophisticated approach may be to have each family member establish a Trust to hold their share of the property.  This is a sort of “trust-within-a-trust” that needs careful drafting.

Trusts that hold family property may be revocable or irrevocable and are usually established while the current owner is living.  Beneficial interest in the trust passes upon the death of the original grantor.  Although people often choose to have themselves as trustees during their lifetime, you should consider the costs and benefits of naming a professional trustee [law firm, bank, property manager, etc.] to take the management role upon your death.  This may improve family harmony as the professional trustee will not show favoritism among the beneficiaries and their role is to ensure the property is well-maintained.

A family trust may also be known as a nominee or realty trust.  It helps ensure that your property is managed according to your instructions for your beneficiaries. Conditions can be baked into the document such that beneficiaries may have their access to property, or funds, limited until they meet their obligations. You might also consider professional trustees if you have a beneficiary who needs specialized medical care and needs extra attention when protecting their interests.

Speak with Attorney McManus, an experienced estate planning attorney, to make certain that this type of trust is right for you.

Reference: Yahoo Finance (March 17, 2020) “What Is a Family Trust and How Do You Set One Up?”

Categories
Categories
Subscribe