Considering a Family Trust When Married

Some forms of trusts can safeguard the ownership of your assets while you are still alive when you get married and want to protect them for your family. Generally, you will give the trust legal ownership of the assets you want to safeguard while retaining the right to use and enjoy them.

The family trust is a well-liked trust for safeguarding your assets during a marriage. How do you determine if a family trust is the best option for you?

  • Are you hoping to benefit in some way by selling your assets?
  • Do you want to be able to shield some of your assets from lawsuits and creditors?
  • Do you want to save money for significant or unique occasions, such as your kids’ education?
  • Do you want to make sure that your spouse and children will get the prescribed payments in a safe manner?
  • Do you want to be able to protect your estate from lawsuits when you pass away?
  • Are you ready to put up with the expenses and difficulty of operating the trust?
  • Do you have a trusted person in mind to serve as the trustee of your trust?

The family trust might be right for you if you indicated yes to any or all of the questions above.

Considerations to keep in mind when deciding on a family trust

Family trusts are complicated and call for dedication to their management and administration. As with other trusts, if it isn’t administered properly, it might lead to additional costs and time as well as the trust being labeled a “sham,” potentially removing the trust’s ability to protect the assets.

It’s critical to realize that when you transfer assets into a trust, you cede ownership and control of those assets. When assets are placed in a trust, ownership of those assets is transferred to the designated trustees, who are obligated to act in the trust deed’s best interests by following the terms set forth therein. Sadly, a trustee’s choice might not always be in line with the wishes of the person who established the trust. perhaps worse, if the trustee is a relative, these disagreements may give rise to tumultuous feelings and perhaps legal action.

Knowing the many stakeholders involved in the process is crucial if you decide to proceed with the creation of a family trust. These consist of:

Settlor (if you are establishing the trust, you are the settlor; if not, the trust-forming individual or entity is the settlor).

Trustee (this is the person (or individuals) chosen to run the trust; choosing an attorney or accountant as trustees can be a wise choice).

Beneficiary: The parties who stand to gain from the trust.

Additionally, it’s critical to comprehend all of the steps involved in setting up the trust. Some general things to think about are:

You must decide which of your assets you want to include in the trust. Determining the worth of each of those assets will also be necessary. Family trusts frequently contain valuable assets like real estate, money, stock, and other things.

The trust then owes the settlor money whenever ownership of the assets is transferred to it. Gifting can be used in this situation.

The trust will be formally established by drafting a trust deed. This will cover issues like choosing trustees, choosing beneficiaries, and laying down the guidelines for running and managing the trust.

Family trust asset transfers and gifting

Transferring assets and gifting are two crucial concepts to comprehend when it comes to family trusts.

Your assets may be sold to the trust at market value once the trust has been established. The problem, however, is how to pay for the assets if the trust lacks the funds to do so. The idea of lending money to the trust is applied in this situation. Consider it essentially as a paper transaction in which you sell the assets to the trust and the trust owes you money as a result. However, it’s crucial to understand that any debt that is owing to you is regarded as a personal asset up until the time it is paid. It is crucial to comprehend how to get rid of that debt in order to decrease your personal ownership since the fundamental purpose of putting the assets into the trust is to produce protections by doing away with personal ownership. Gifting can be used in this situation.

The debt that the trust owes them can be transferred away through gifts, which also offers options to lower estate taxes.Consider it your wealth transfer plan.

Before a gift tax kicks in, the giving procedure is limited by federally specified annual maximums. For 2015, any number of people could receive gifts totaling up to $14,000 without incurring a tax. In the case of presents split between spouses, this rises to $28,000. The additional benefit of being able to pay an unlimited amount directly to medical and educational providers on behalf of others if they are approved expenses comes with its own set of advantages. Prior to the imposition of any out-of-pocket gift taxes, there is a lifetime aggregate exemption as well. This means that you may give away up to a federally set amount during your lifetime (currently $5.43 million), in addition to the $14,000 annual gift exclusion and payments made for eligible costs (educational institutions and healthcare providers).

It is strongly advised that you obtain the expertise of an experienced estate planning attorney when creating your trust due to the extremely complex nature of trusts, asset transfers, and giving.

Asset protection trusts

You want the best for your family when you are married, even after you pass away. The right and properly constituted and managed trust can frequently be the mechanism to guarantee the protection of your assets and, consequently, the future of your family.

Any sort of trust that allows for money to be held and maintained on a discretionary basis is included in the concept of asset-protection trusts, which encompasses a wide range of legal structures. It is frequently employed for things like:

  • defending property against creditors
  • lowering or removing taxes
  • safeguards against divorce
  • Anticipated safeguards in the case of bankruptcy

Consider these trusts as having the potential to defend your assets against creditors in the event of legal proceedings, unpaid debts, or other situations where your personal assets would typically be exposed to seizure.

Asset protection trusts generally come in two different varieties. self-settled trusts and third-party trusts. One party creates a third party trust for the benefit of another. Self-settled trusts are created by one party only for that party’s advantage.

There are many third-party asset protection trust designs as well, including those created for beneficiaries who are children, surviving spouses, adults, and people with disabilities.

Setting up a Trust

Therefore, you have decided to create a trust on your own. It’s time to make sure you ask the necessary questions to make sure your trust is legitimate, complies with the rules of your state, and achieves what you want it to.

What are your expectations for the trust?Trusts are a great way to ensure that your estate is safeguarded and handed on to your beneficiaries while also protecting your assets, property, and wealth. It can also be used to lower your tax bill, donate assets to your preferred charity, or merely keep your assets in the family for future generations.

How much management authority do you desire over the trust’s assets and operations? Different levels of control or authority accompany various levels of protection. Trusts can either be revoked or not. An irrevocable trust can be the best option if you need a higher level of protection, even though the assets are no longer yours. Revocable trusts, on the other hand, permit the transfer of assets into the trust with the option to transfer the assets later or dissolve the trust entirely (but do not provide the same level of protection as an irrevocable trust).

Who do you want to receive the proceeds from your assets?A spouse and children are frequently included as beneficiaries. Having said that, perhaps you want it to be your grandchildren, a good cause, or a close friend.

Some other questions that may be good to consider include:

  • How significant is it to you to avoid probate?
  • Do you want the private assets to remain that way?
  • Should the assets you and your spouse brought into the marriage be divided?
  • Does your estate require a technique to lower estate taxes because it exceeds the combined estate tax exclusion?
  • Who will serve as your trustee and handle the trust’s assets, and who will serve as a fallback in their absence?
  • What property do you plan to put into the trust?

Which trust is the best fit for you now that you know your options?There are numerous different trust categories, each typically linked to particular results. For illustration:

  • Typically, living trusts are meant to avoid the probate process and transfer assets directly to beneficiaries.
  • In most cases, charitable remainder trusts are utilized to leave assets to a charity after your passing.
  • High net worth individuals who want the trust to be the beneficiary of their life insurance and their heirs to be the beneficiaries of the trust may consider using life insurance trusts.
  • Bypass trusts, usually referred to as marital or family trusts, are frequently used to help married couples avoid expensive estate taxes.
  • Spendthrift trusts are typically used when you want to ensure that money given to a beneficiary isn’t wasted rapidly, giving you alternatives like giving the money out gradually as an allowance.
  • QTIP trusts are typically used to make sure that your assets won’t pass to your new spouse if you pass away and your spouse remarries and passes away as well. By transferring the assets to the trust, you can support your spouse financially while also ensuring that your children would be taken care of in the event of their passing.

Once you’ve chosen the kind of trust you want to create, you need to look into the procedures and legal requirements for doing so.

For instance, creating a living trust can typically be straightforward and only calls for a written agreement or declaration that names a trustee to oversee and manage the grantor’s (you) assets. Naturally, you’ll want to check your state’s legislation to make sure that all clauses and points are covered.

The final line is that you must choose the trust that will work best for you. What is suitable for one person might not be suitable for you. Even while there isn’t a perfect solution that fits every circumstance, your chances of building the correct trust increase if you take the time to determine your own financial goals and principles.