You have worked long and hard to accumulate assets that you eventually want to pass on to your loved ones. How do you protect your assets and ensure that the right assets go to the right beneficiaries? The answer is a revocable family trust.
A revocable family trust helps you minimize estate taxes, protect assets from creditors, and most importantly, transfer wealth to the future generations of your family.
Three parties participate in forming and managing a family trust: a grantor, a trustee, and the beneficiaries. The grantor forms the trust and decides which assets to transfer into the trust to be passed on to designated beneficiaries. As the manager of a family trust, the trustee must follow the grantor's wishes as written into the terms of the trust. Beneficiaries represent the parties that receive financial benefits from the trust, similar to how beneficiaries receive assets from a life insurance policy.
As the name implies, a family trust names just the family members as the beneficiaries of the assets distributed from the trust. This means you can name your spouse, children, siblings, and grandchildren as beneficiaries. A family trust is a type of living trust that can be either revocable or irrevocable. With a revocable trust, you have the legal right to name yourself as the trustee, with language written into the terms of the trust that names a trustee to take over if you become incapacitated.
A family trust makes sure a trustee manages your assets according to how you want them distributed to named beneficiaries. For example, let's assume you have $10 million in assets and want to distribute the assets to your children and grandchildren. By forming a family trust, you determine what percentage of your assets each beneficiary gets and the terms for gaining access to the assets.
Let's say you have $10 million in assets and ten beneficiaries. You can distribute 10 percent of the assets to each of the named beneficiaries. As far as terms, you can require beneficiaries to reach a certain age before they gain access to their share of your assets.
Forming a revocable family trust is the most effective way to ensure your assets get distributed according to your wishes. It is the ideal financial tool to ensure management continuity because you add terms into the trust that define how the trust should be managed upon your death or if you become incapacitated. It isn't easy to quantify peace of mind, but establishing a revocable family trust is undoubtedly a benefit.
Shielding your assets from creditors is another advantage of forming a revocable family trust. Your assets remain protected in the trust, and when the time comes for distribution, creditors cannot touch the assets when they go to the designated beneficiaries. Your assets also are protected from a divorce settlement when you establish a revocable family trust.
Privacy is an integral reason why many individuals create revocable family trusts. Probate changes all of that by making your finances a public record. The probate process is also costly and time-consuming, which makes forming a revocable family trust an effective financial strategy to keep your financial information private and keep you out of the probate process.