A family trust, otherwise sometimes called a revocable living trust, can be a powerful financial management tool. Family trusts aren't just for the ultra wealthy. They can be very beneficial even for people with ordinary assets like a private home. Setting one up isn't complicated, and there can be several advantages to choosing this strategy.
What Is a Family Trust?
A trust is a document, usually drawn up by an attorney and accordingly legally binding, that is used for estate planning. The document details how the assets in the trust will be managed during the lifetime of the grantor, who is the person who sets up the trust, and how they will be managed after the grantor's demise. The grantor appoints one or more trustees who must carry out and abide by the terms of the trust after the death of the grantor. A trustee who fails in this duty may be subject to criminal or civil actions, so it's important to choose trustees with care. A trust also has beneficiaries, those individuals who will receive the assets upon the death of the grantor along the guidelines defined by the trust.
Setting up a Family Trust
It's almost always best to hire an attorney to help draw up the terms of the trust. This ensures compliance with all applicable laws and also helps to avoid errors. The grantor has the ongoing right to change the terms of the trust. For instance, they may add or delete assets as necessary or appoint different trustees. They may also change how the assets will be divided among the beneficiaries and revise when and how disbursements will be made.
Why Set Up a Family Trust?
Some people set up family trusts so that they can maintain control over how their assets are utilized after their death or in the event of their disablement. Others set up a trust so that they are no longer the legal owner of the assets involved. Assets will be transferred to the trust's ownership, but the grantor still controls them, meaning they have the ability to sell them or otherwise use them even when they are part of the trust. However, these assets will also be protected against creditors and a variety of potential legal actions against the grantor as an individual. These assets are no longer in the grantor's name, and therefore claims cannot be made against them.