Estate planning requires you to make a number of important decisions along the way to creating a comprehensive estate plan. Ideally, you will work closely with an experienced New Hampshire estate planning attorney when making all of those decisions; however, you will also undoubtedly take some time to contemplate additions to your estate plan yourself. For example, you may have heard of a “family trust” and wondered if you should have one as part of your estate plan. Understanding the basics of a family trust may help you decide if one is right for your comprehensive estate plan.
What Is a Family Trust?
A family trust, also referred to as a “family wealth trust” is a simply a specialized type of trust used to pass down family wealth and keep those assets in the family upon the death of the matriarch and/or patriarch of the family. Despite the name, it is not necessary to have to have a fortune to benefit from a family wealth trust. Although a family trust is often used to pass down a family fortune, anyone who wishes to protect and pass down assets and keep them in the family can use a family trust to do so.
How Is a Family Trust Different from Other Trusts?
All trusts start out essentially the same. A trust, at its most basic, is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, who transfers property to a Trustee. The trustee holds that property for the trust’s beneficiaries. A family wealth trust, or FWT, is simply designed specifically to hold and protect family property. One goal of a FWT is to grow the assets transferred into the trust through prudent investing. While most trusts aim to grow the assets held by the trust, a FWT generally directs the Trustee to not take risks when investing the assets. The goal being to make sure the assets make it to the next generation intact. A related goal of a FWT is often protecting those assets so they will be available for future generations. Assets can be at risk from a variety threats, including creditors of the current owners, creditors of future beneficiaries, bankruptcy, divorce, and even spendthrift beneficiaries. By creating a FWT and establishing the right type of trust, family assets are protected from all of these threats so that they can be passed down to future generations.
What Type of Trust Is Used for a Family Trust?
In order for a trust agreement to provide maximum asset protection it generally needs to be an irrevocable trust agreement. The reason for this is that when you create a revocable trust you, as the Settlor of the trust, will retain the right to modify or revoke the trust. Therefore, you also retain the legal right to control assets transferred into the trust. Those assets, therefore, are still potentially part of your estate. As such, those assets remain accessible to creditors of yours or of a beneficiary. If you create an irrevocable trust, however, you cannot modify or revoke the trust once it becomes effective. Therefore, assets transferred into the trust are no longer considered part of your estate and are, as such, out of the reach of creditors. While any trust may protect you from a spendthrift beneficiary through the trust terms, only an irrevocable trust will also protect assets from creditors, bankruptcy and other threats to those assets because the assets are legally owned by the trust once they are transferred into the trust. In this way, a family wealth trust is able to protect your family assets and preserve them to be passed down to your children, grandchildren, and even future generations. Moreover, as you add assets to your estate you can transfer those assets into the trust to ensure that all of your family assets are protected for thee use and benefit of future generations.
The best way to determine if a family trust would be a beneficial addition to your estate plan is to consult with your experienced New Hampshire estate planning attorney.
If you have additional questions or concerns regarding a family trust, contact the experienced New Hampshire elder law attorneys at Debruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.
- What You Need to Know to Protect Your Special Needs Child - May 30, 2023
- How Tax and Non-Tax Considerations Impact Estate Planning – Part I - May 25, 2023
- The IRS’ Annual Warning: The 2023 Dirty Dozen - May 23, 2023