Family trusts are an excellent means of passing along wealth and assets to loved ones after your death, as well as protecting your estate from outside threats during your lifetime. Here are a few major advantages you’ll enjoy when you create a family trust.
1. No Probate
Bequeathing your wealth and assets through a last will and testament means your family has to go through a protracted an expensive probate process. In addition, when a will goes through the probate process it becomes public record.
This might not seem like a problem, but if the deceased had a lot of debt, it’s reasonable to assume that creditors will come after assets as soon as the contents of the will become a matter of public record. In other words, beneficiaries could end up dealing with contestations and lawsuits that deplete any wealth and assets left to them in the will.
Family trusts are not subject to probate because the wealth and assets held in trust no longer belong to the grantor/settlor (the person who created the trust). Instead, the trust owns them until such time as they are passed along to beneficiaries so that claimants can’t disrupt the wishes of the grantor.
2. No Estate Tax
This is a biggie. Not every country has an estate tax, but for those that do, passing wealth and assets through a will could leave your loved ones holding the bag for serious estate taxes amounting to half (or more) of the value in some cases.
3. Separation of Assets
If you have a business, incorporating is a great way to ensure that business creditors don’t come after your personal assets for payment. Family trusts simply add another layer of protection against outside claims, not only from business interests but from personal relationships as well.
4. Asset Control Without Ownership
It’s natural to balk at giving up ownership of assets to a trust and a trustee, but at the time you create your trust you can make stipulations concerning the use of assets during your lifetime, generally leaving you with control of assets even as you protect them for beneficiaries.
5. A Structure for Your Needs
There are all kinds of trust structures you may enter into, but there are two main types to be aware of: income-earning and non-income-earning trusts. When you place assets that earn income (stocks, for example) into trust, there are ongoing expenses associated with paying annual income tax on earnings.
You may, therefore, want to separate out non-income-earning assets like a family home or heirloom furniture and jewelry into separate trusts that require little upkeep or administration costs following initial creation.
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