Family trusts are designed to provide for or distribute wealth to your surviving family members in the event of your death. Family trust is a generic term used to describe a number of different trusts that provide for minor children, widows and widowers, and surviving adult children.
Advantages of a Family Trust
A family trust ensures that your wealth remains private. Instead of your property going through the probate process, which leaves behind public documents, a trust is set up while you are still living and avoids probate entirely, when done properly. For those with estates larger than 2 million dollars, planning a family trust can channel your wealth and drastically reduce the amount of estate taxes owed when you die. In fact, any irrevocable family trust avoids estate taxes entirely by instead requiring that gift taxes are paid on the property when it is deposited into the trust. This can be very advantageous because gift taxes tend to be much lower than estate taxes.
Family Trust to Provide for Minor Children
As difficult as it is for most parents to even consider, tragedies do happen, and sometimes a tragedy can take the lives of both parents, leaving any surviving children orphaned. While most parents will create a will that names a guardian for their children, very few parents consider the need for a trust to provide for the children’s financial needs. As most parents know, raising kids is expensive and leaving a guardian with little or nothing to cover the children’s needs could result in a guardian refusing to accept your children.
Instead, parents can set up a family trust for minor children. The trust can be either placed in your will or set up in advance if you prefer the trust to remain private. This type of trust allows the guardians of your children to focus on parenting without worrying about also supporting their financial needs. Instead, this job is assigned to a trustee who oversees the distribution and investment of the trust funds and makes certain that there is always enough to provide for the children.
Typical drafting for a family trust for minor children will instruct that trust funds are for the welfare, health, and education of the children and are at the discretion of the trustee. If you do not want the guardians to ask permission for a release of trust funds, you can instead designate that the monthly income is distributed to the guardians based on the current market value and additional emergency funds must be requested.
Family Trust for Widows and Widowers
Most often, one spouse passes away before the other, leaving the surviving spouse to care for the home and estate. If only a will is created, then the entire estate must go through probate—a process that can take up to two years. Even worse, the surviving spouse is placed on an allowance by the court and must request additional funds from the court as necessary.
If this plan sounds undesirable, then a family trust would be a good decision for your wealth. A surviving spouse family trust will provide for the surviving spouse during the duration of his or her life without costing the spouse any estate taxes. In fact, for families with large estates, proper planning can take advantage of current tax codes to begin removing funds from the total estate when the first spouse dies. This means less taxes for the eventual beneficiaries once your spouse also dies.
Family Trust for Surviving Adult Children
If you would prefer to see your wealth spread out over a longer period of time for your children, a family trust will meet this need. In fact, you can set up a family trust that only pays the children the interest accumulated in the trust from the past year. Additionally, the trust can prevent irresponsible children from signing away their interest in the trust and ex-spouses from accessing trust funds as part of a divorce.
Getting Legal Help
If a family trust sounds like a good estate planning option for you, contact an estate planning attorney for a consultation.