Most people tend to have misguided notions and ideologies about family trusts. They assume that trusts are only for wealthy families or a set up to help disadvantaged individuals like the elderly or those living with disabilities. Well, the assumptions are not entirely wrong. While a trust can serve these purposes, you can also set one up as a business planning tool for the future.
This article looks at family trusts, their use as business planning tools, and their advantages over typical succession plans like wills, especially for individuals in blended families or seeking to keep their assets or estates away from the public eye.
What is a Family Trust?
Trusts are legal arrangements under which assets one individual, the "settlor," transfers assets to another referred to as the "trustee" to hold these assets as the owner but for the benefit of other people referred to as the "beneficiaries." You can also set up a trust to manage estate taxes and shelter your assets from creditors. Thus, a family trust is a type of living trust where the beneficiaries are your family members.
One can use a trust as an estate, succession, or business planning tool for their family instead of using wills and other succession methods. Unlike a will, trusts aren't subject to probate during succession, which brings us to the advantages of using a family trust as a business planning tool.
1. They Ensure/Guarantee Privacy
With a trust, it is possible to avoid probate –you'll have the advantage of passing on your estate without disclosing details to the court. By avoiding probate, the details of your assets aren't exposed to the public. Your beneficiaries are also protected against unending lawsuits, divorce, and creditors.
2. Family Trusts Ensures Smooth Succession
You wouldn't want succession wrangles among your family members and beneficiaries once you are gone. Families have torn down years of investments in inheritance battles due to the estate owner's lack of a clear succession plan.
A family trust ensures smooth succession since the trustee acts according to your wishes and instructions –their word is your word. The trustee will invest your assets and in your estate for the good of the beneficiaries. If the assets include a business, the trustee will ensure that everything runs smoothly as per your directives.
3. It's a Long-term Succession Plan
With the right financial advisors and estate planning attorneys, you can choose the type of family trust that is right for you and then proceed to set up one with your trustee and decide your beneficiaries. Once you create a trust agreement, you'll fund the trust.
You can include your business or estate in the trust, with the guarantee that your beneficiaries will benefit from the revenue and proceeds years after creating the trust. The business might be valued better or higher than what it was worth when you were including it in the family trust.
A trust can also help if you want to retire early and leave your business to a trustee. You can comfortably set up your retirement income and what happens with your business once you're gone.
4. Protects Vulnerable Family Members
The trustee is under a legal obligation to adhere to the terms and conditions of the trust agreement –your word has to be followed. Every beneficiary in your trust, including children and the ill, is assured to benefit since the trustee follows the trust document without minding individuals' opinions.
5. Protects Your Assets Against From Irresponsible Beneficiaries
Not everyone in your list of beneficiaries turns out fine or as you'd expect. You might have children who are spendthrifts, addicted, or living with mental conditions, who will quickly waste away your assets and businesses once they get their one-off inheritance.
You might also have children who are unmarried but have children. They might find partners who will lure them and take away their money. A family trust is a sure way to save you from such predicaments.
6. You Have More Options
A family trust gives you the chance to create a separate patrimony, where your beneficiaries can access funds or assets only when they are in extremely difficult situations or exceptional circumstances as defined in the trust agreement.
With a family trust, it's possible to fuse your personal assets and business successions strategies. Your trustee can manage both your business and personal money channels such as Social Security and retirement benefits and advise you accordingly on what to risk for the highest possible return.
Are you looking for attorneys to help manage and maintain your family trust fund? Law Offices of James C. Shields is your go-to firm. Please contact us today to get started.