A trust represents the most effective tool for protecting assets, minimizing estate taxes, and passing on wealth to loved ones when it comes to financial planning. A family trust can help you create a financial legacy for decades to come. In addition to sheltering assets and lowering your estate tax bill, a family trust provides you with privacy when it comes to disclosing your financial transactions.
Not every family needs a family trust, but if you are considering setting one up, you should learn whether a family trust is revocable or irrevocable.
What Does a Family Trust Do?
A family trust is structured like other types of trusts. A grantor lays down the financial terms and conditions of a family trust, such as declaring which assets transfer into the trust. The trustee receives instructions from the grantor concerning how to manage the trust assets. Some forms of trusts prohibit the grantor from also assuming the role of the trustee. Beneficiaries, including a spouse, children, and siblings, receive assets from a trust and the income generated from the assets placed in a trust.
As a type of living trust, you can establish a family trust to be either revocable or irrevocable. A revocable trust allows you to change the terms and conditions of the trust at any time. You have the legal power to transfer in and out different assets and add and remove beneficiaries. On the other hand, an irrevocable trust prohibits you from altering the legal language written into the terms and conditions. You can name yourself the trustee with a revocable trust, while the same cannot be said for an irrevocable trust.
The decision to create either a revocable or irrevocable trust is an important one. Consult with an experienced estate planning attorney to ensure you make the right decision.
Why Should I Establish a Family Trust?
Creating a family trust helps you manage your assets according to your wishes. You set up this type of trust to control the division of assets among the named beneficiaries. This type of trust allows you to include stipulations that your beneficiaries must follow. For example, you can create a family trust that states the children named in the trust cannot receive access to the assets and the income produced by the assets until they reach a certain age.
A family trust also is an effective strategy to shield assets from Medicaid. The federal government program places a limit on the value of assets and income. By placing assets into a family trust, the assets do not count towards the asset value maximum set by Medicaid. Opening this type of trust helps you avoid probate, which is the process that involves the executor of your estate organizing and liquidating your assets to pay creditors and distribute the remaining value of the assets.
How Do I Set Up a Family Trust?
One of the first decisions you can make is to decide whether to set up a revocable or an irrevocable family trust. You then create the terms and conditions of the trust based on your decision whether to make it revocable or irrevocable. After establishing the terms and conditions, you select a trustee, someone you trust to carry out your financial wishes. Finally, you name the beneficiaries that receive the financial windfall of the trust after you die or become incapacitated. After creating the terms and conditions and naming the primary players, you must fund the trust with the designated assets.
Whether you decide on a revocable or an irrevocable family trust, meet with a highly-rated estate planning attorney first to determine which type of trust matches your financial interests. Schedule a free consultation today with an estate planning lawyer from Cloud Peak Law Group to protect your assets and set up your family financially.