A family trust is more commonly known as a living trust. This is a legal document that retains ownership of titled property and financial assets. The person setting up the trust has total control over assets while living and appoints a Trustee to settle the estate upon death.
Setting up a family trust requires individuals to fund the trust by transferring ownership of assets. This is accomplished by acquiring new property titles for real estate and vehicles and changing names on bank accounts and financial assets.
The person that sets up the trust is referred to as the Grantor. This person is oftentimes also the Trustee. However, Grantor's can appoint someone else to oversee the trust and assume control over their assets if they want.
If the Grantor acts as the Trustee, then the person charged with settling the family trust is known as the Successor Trustee. This person is allowed to take control of the trust if the Grantor becomes incapacitated, so it is wise to give careful thought to this position.
Living trusts are popular with married couples because they let both partners maintain control of assets together and separately. Both can act as the Trustee and Successor Trustee. However, another successor needs to be identified to settle the trust when both spouses have passed.
The people who inherit property in the trust are known as beneficiaries. Grantors can select anyone they want to receive estate assets. When minor children are involved, family trusts can hold assets until they reach legal age.
The child trust fund is managed by the successor trustee. It's advisable to work with an estate attorney when establishing trust funds for children to maximize benefits and lessen estate tax.
People often make use of a living trust to avoid probate. While this is a good method, it is important to realize that revocable trusts must be fully funded to completely bypass the probate process.
Probate is needed to record the transfer of property ownership when a person dies. When property is placed in a revocable family trust it is no longer part of the estate because it technically isn't owned by the decedent.
Family trusts offer many benefits to everyone involved. Trusts provide authority to successor trustees to take over personal finances if the Grantor becomes incapacitated. Without a trust, a person will have to appear in court to obtain guardianship rights. This can result in delays that prevent guardians from handling finances or other important matters.
Living trusts provide tax benefits to married couples by allowing them to maximize their federal estate tax exemption. They are ideal for people that own real estate in more than one state and an excellent method for asset protection.
A primary benefit of family trusts is that they ensure assets will be gifted to the people intended. When assets are bequeathed to heirs by means of a will and testament there is potential for someone to contest the document. When this happens, assets are frozen until the outcome of the lawsuit is determined.
Assets placed in trusts are not frozen and can still be distributed to heirs even if a lawsuit is pending. Instead of filing suit against the estate, Petitioners' file suit against each beneficiary.
Lastly, living trusts typically include medical power of attorney to appoint a person to make medical decisions on behalf of the Grantor should they be deemed incapacitated by a physician. Regardless of whether a person sets up a trust or not, medical POA is something everyone should arrange.
The team of estate planning attorneys at Craton and Switzer are dedicated to helping clients establish trusts and estate planning strategies to protect assets. We engage in strategic planning to reduce estate and inheritance taxes, avoid probate, and simplify the process of estate settlement.
We invite you to contact us to setup your family trust or discuss estate planning strategies. We also offer an estate planning blog to help you become familiar with various methods and how they work.