Family wealth trusts are not just for the extremely wealthy. They can help families transfer wealth from one generation to the next quickly and easily. Family wealth trusts are extremely customizable. They can help families provide for minor children, protect family members with special needs, and shield family assets from unwarranted lawsuits. Your estate planning attorney can help you create a trust as part of a comprehensive estate plan.

What is a family wealth trust?

A family wealth trust is a legally binding estate planning tool in which a grantor (the person who establishes the trust) passes on assets, including property, heirlooms, business interests, and accounts, to beneficiaries.

A trustee is the person or entity responsible for managing and distributing the assets held in the trust in accordance with the trust instructions. In most cases, a family trust is a living trust. It is established during the grantor’s lifetime. The grantor commonly serves as the first trustee of the trust and names successor trustees to take over when the grantor becomes incapacitated or dies.

A family wealth trust can be either revocable or irrevocable.

• Revocable trust: This type of trust allows the grantor to make changes to the trust document throughout their lifetime. For example, they can add or remove beneficiaries, fund the trust with additional assets, change investment strategies, and even dissolve the trust. Families with assets that are well below the current estate tax exemptions may choose a revocable living trust.
• Irrevocable trust: The trust documents in an irrevocable trust typically cannot be modified. The grantor transfers ownership of their assets to the trust. Since the grantor no longer “owns” the assets, they cannot revise the trust document. An irrevocable trust provides better asset protection against creditors and comes with some tax advantages. Families with significant assets may consider an irrevocable trust, which can help reduce or avoid estate and generation-skipping transfer taxes.

What are the potential benefits of establishing a family wealth trust?

Establishing a family wealth trust comes with many potential benefits.

Avoiding Probate

One benefit is the ability to avoid probate. Assets in the trust are distributed to beneficiaries following the trust instructions instead of going through the probate process. Since probate can be an expensive and lengthy process, a trust provides an option for transferring assets more quickly and easily to future generations while maintaining privacy and confidentiality.

The larger and more complex the estate, the more likely it is that the probate process will be expensive and time-consuming. If the will is contested, the process can drag on even longer. A prolonged probate process can present a significant hardship to heirs who need the assets more immediately.

Caring for Minors

A trust makes it possible for parents to pass on assets and instructions to their children. Parents can provide for their children without giving them direct control over money and assets. They can instruct the trustee on how and when to distribute the trust assets and even stipulate how the assets will be used to care for their children.

Protecting Individuals with Special Needs

A special needs trust provides an avenue to distribute money and assets to individuals with special needs without jeopardizing their eligibility for government benefits.

Trusts can also protect beneficiaries who lack investment experience or have a history of being spendthrifts. A trustee can distribute assets from the trust on a predetermined schedule and, therefore, protect the rest of the trust’s assets from a spendthrift’s creditors.

Successor trustee

Unfortunately, most people face an increased risk of dementia and other cognitive impairments as they get older. If the grantor is no longer competent to manage their property and assets, control of the trust will pass to the successor trustee.

When a grantor establishes a trust, they can name one or more successor trustees. A successor trustee must manage the trust according to the trust instructions. They have a fiduciary responsibility to manage the trust so that it benefits the beneficiaries.

What are the potential disadvantages of a family wealth trust?

Establishing and maintaining a family wealth trust can be complicated, and most people require professional help from an estate attorney. Trusts can provide financial and tax-saving benefits, but they are only helpful in this regard if they are set up correctly.

A family wealth trust costs more to establish and maintain than a will alone. However, for people with more modest or simple estates, a will may suffice. Trust documents must comply with all state laws and have the required signatures to ensure the family wealth trust is valid. The grantor must fund the family trust by re-titling assets in the trust’s name. Even small errors or omissions can make the trust invalid.

Trusts provide a means for families to care for each other across generations. When establishing a trust, speak with a financial advisor about your family’s specific financial needs and goals, as well as an estate attorney, to ensure that you have a comprehensive estate plan. When preparing trust documents, be sure that they provide any flexibility you may need as your family structure, needs, and goals change over time.

If you have questions about family wealth trusts or want to learn about how to protect your assets and property with a comprehensive set of estate planning tools, contact us.

You can schedule a call with us or reach us directly at 855.631.3457 to learn more about how to best plan today to protect those most important to you.