Keep it in the family- your money, that is! When it comes to protecting your assets for future generations, most often your children or grandchildren, an irrevocable family trust can be a powerful tool. Setting up a family trust is a complex process, however, so the assistance of an experienced estate planning attorney is highly advisable. Before setting up a family trust, you should consider the following:
- The Key Players – Every trust, family trusts included, requires three key players: the Settlor, the Trustee and the Beneficiary (or Beneficiaries). The Settlor is the person who establishes the trust; typically the Settlor is the person who owns the property initially contributed to the trust. The Trustee is the person or entity who manages the trust according to the Settlor’s wishes. The Trustee is usually a family member, but sometimes a professional Trustee or institution administers the family trust. The Beneficiaries are those persons who stand to benefit from the trust, usually children, grandchildren and other relatives of the Settlor.
- The Assets – One of the primary reasons for forming an irrevocable family trust is to protect assets, either from creditors or from exposure to taxes. Assets that you own can be sold or gifted into the trust, effectively allowing the Trustee to manage and distribute the property according to the terms of the family trust agreement. If the family trust is structured and administered properly, assets in the trust can be protected from creditors and can avoid estate and income taxation.
- Know the Risks – Like most things in life, irrevocable family trusts are not foolproof. In order to enjoy the asset protection and estate tax reduction benefits, careful compliance is required. The assistance of a knowledgeable trust attorney and accountant is crucial. Failure to properly establish and maintain a family trust can result in negative income and estate tax consequences and can expose your family’s assets to creditors. You must also make sure that the Trustee is reliable. Once you contribute property to the family trust, you generally lose the right to control or benefit from that property.
- Know the Demands– While there are many benefits to establishing an irrevocable family trust, they are not for everyone. Setting up a family trust can be complicated, and regular maintenance is required to ensure they function properly.
- Hire the Right Attorney – Gevurtz Menashe’s family trust attorneys can not only assist with the initial formation of irrevocable trusts, but also with the maintenance and termination of trusts. Contact us today for more information or to schedule a consultation.
John Christianson, Of Counsel (Estate Planning)