If you have (or anticipate having) significant family wealth and would like to ensure that you’re able to create a family legacy and ensure family members receive the wealth, you may want to set up a trust.

What is a family trust? 

A family trust is a legal, documented way to ensure that your wealth is managed according to your wishes on behalf of your beneficiaries. You can use a family trust to specify what share of assets your family members can access and when (for example, a child can access their share on their 30th birthday).

There are three parties involved: A grantor (the person who creates the trust as a place to hold their assets); a trustee (the person who manages the trust on behalf of the beneficiaries); and the beneficiaries (those who ultimately receive the assets).

This type of trust is what’s known as a living trust, which means it will take effect during your lifetime, and it can be either revocable or irrevocable. An irrevocable trust is permanent, and you must establish someone other than you as the trustee. A revocable trust can be altered or terminated at any time, and you serve as the trustee.

Who are the beneficiaries? 

A family trust specifically for family: spouse, children, grandchildren, siblings, and any other family members who you determine should be beneficiaries.

Who should have a family trust? 

There are a number of reasons you might want to consider a family trust as part of your legacy or estate planning.

  • To minimize estate taxes: A family trust can help to lessen the burden of estate and gift taxes once you pass away.
  • To avoid probate: The probate process involves going through the court system to collect and liquidate assets, pay creditors, and distribute the rest of your assets to your family members. If you use this process of transferring assets, everything becomes part of the public record. It can also be a costly and time-consuming process.
  • If a family member requires medical care: If you have a family member who may require long-term care and you want to be able to qualify for Medicaid, placing funds in a trust can exclude those assets from Medicaid eligibility.

  • To ensure assets pass to your heirs rather than creditors: This applies to an irrevocable trust only. When you establish an irrevocable trust, you no longer have legal ownership of the assets that are used to fund the trust, and you don’t have control over how those assets are distributed. Because of this change of ownership, a future creditor can’t satisfy a judgment against assets held in an irrevocable trust. Be sure to go over the legalities of this with an experienced attorney.

How can I set up a family trust? 

Get started by talking with your wealth advisor or an estate planning attorney to identify and set up the best type of trust that fits with your estate planning needs. They can also help you understand the legal requirements for a family trust in your state.

Your wealth advisor or estate planning attorney can guide you through key decisions, including who should act as a trustee, whom you should establish as beneficiaries, and what the terms of the trust agreement should be.

Lastly, you’ll transfer assets from your ownership into the trust to fund it. Your trust can include assets like real estate, bank accounts, stocks and other investments, family heirlooms, and fine art.

Do you need a wealth advisor to help with your estate and legacy planning? Ironwood Wealth Management can help you with every phase of your financial life. Contact us to get started.