In a family trust, the trustees are usually Mum and Dad (or a company of which Mum and Dad are the shareholders and directors). Their children and any other dependants are usually listed as beneficiaries.
Rigidity: Family trusts are often inflexible, making it difficult to alter the terms once they are established. This rigidity can be problematic if family circumstances change, such as in cases of divorce, remarriage or changes in financial status.
A trustee is in charge of the trust and manages the trust assets on behalf of the grantor and according to the trust agreement. A trust beneficiary receives the assets of the trust.
Division of Community Property: Community property assets within the trust will be divided equally between the spouses, while separate property remains with the original owner.
That means your children, grandchildren, siblings, aunts and uncles, cousins or any other family members can be a beneficiary. Family trusts can also include spouses.
Selecting the wrong trustee is easily the biggest blunder parents can make when setting up a trust fund. As estate planning attorneys, we've seen first-hand how this critical error undermines so many parents' good intentions.
Generally speaking, once a trust becomes irrevocable, the trustee is entirely in control of the trust assets and the donor has no further rights to the assets and may not be a beneficiary or serve as a trustee.
Typically, a revocable trust with clear provisions for outright distribution might conclude within 12 to 18 months. However, in simpler cases, the process can take an average of 4 to 5 months without complications.
Depending on who prepared your Family Trust deed the 'controller' may be known by many different names: Appointor. Guardian. Appointor and Guardian.
Parents and other family members who want to pass on assets during their lifetimes may be tempted to gift the assets. Although setting up an irrevocable trust lacks the simplicity of giving a gift, it may be a better way to preserve assets for the future.
How to dissolve and close your Family Trust. You must formally wind up (vest) the trust to close down this unused structure. Build this Vesting a Discretionary Trust deed on our law firm's website.
Trusts offer amazing benefits, but they also come with potential downsides like loss of control, limited access to assets, costs, and recordkeeping difficulties.
Disadvantages of Family Trusts
If you continue to treat the assets as your own, any trust could be open to challenge as a sham. Additional administration – If you establish a trust, you need to allow for the time and cost involved with meeting the trust's annual accounting and administrative requirements.
The ability of a beneficiary to withdraw money from a trust depends on the trust's specific terms. Some trusts allow beneficiaries to receive regular distributions or access funds under certain conditions, such as reaching a specific age or achieving a milestone.
Irrevocable Trusts
Using an irrevocable trust allows you to minimize estate tax, protect assets from creditors and provide for family members who are under 18 years old, financially dependent, or who may have special needs.
The grantor can set up the trust so the money is distributed directly to the beneficiaries free and clear of limitations. The trustee can transfer real estate to the beneficiary by having a new deed written up or selling the property and giving them the money, writing them a check or giving them cash.
The trustee manages the trust and distributes its assets at a prescribed time. The trustee is in charge of managing the assets in an irrevocable trust while the grantor is still alive.
When you inherit a house in a trust, it means the property was placed in a trust by the previous owner for you to become the beneficiary. A trust is a legal arrangement where one party holds property for another's benefit. As a beneficiary, you're entitled to the property after the owner's passing.
You designate a trustee who will manage the assets for your benefit and the benefit of your chosen beneficiaries. The key distinction is that you retain full control and ownership over the trust and its assets while you are living.
While trustees may temporarily be able to delay trust distributions if a valid reason exists for them doing so, they are rarely entitled to hold trust assets indefinitely or refuse beneficiaries the gifts they were left through the trust.
But for more complex estates, a trust can be a valuable tool. “A will manages what happens to your assets after death, but a trust goes into effect as soon as you sign the paperwork,” says Cyndy Ranzau, wealth strategist with RBC Wealth Management-U.S. “A trust can dictate what happens while you're alive.
For example, Gargiulo and Ertug (2006) identify what they call the 'dark side' of trust as occurring when the trustor strays beyond a critical threshold of confidence such that her trust in another becomes inappropriate and ill-judged.
There are a variety of assets that you cannot or should not place in a living trust. These include: Retirement accounts. Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust.