How Beneficial Are Family Trusts?
The purpose of family trusts is simple.
They are designed to protect the assets of a family.
Does this mean that everyone should use them? You can make this decision after learning how they work, how they can benefit you and what you need to be careful about.
How They Work The family trusts are used for transferring the legal ownership of assets.
The person who creates the trust is a settlor.
The settlor transfers his ownership rights over various assets, typically property, investment portfolios and cash, to the trust.
The settlor can also be appointed as a trustee.
In this case, he will have a say on how the assets are managed.
The appointed beneficiaries, who are typically the family members including the settlor, are entitled to benefiting from the trust.
The idea is that by transferring the ownership of the assets you will safeguard them.
At the same time, you will continue to use them as before.
You will still live in your house, for example.
Benefits and Advantages One of the major benefits of family trusts is to protect the assets from claims and creditors.
If there is a professional liability claim against you, for example, your assets will be shielded.
Similarly, if your business fails, your personal assets will not be affected.
You will also safeguard your assets from unexpected financial disasters and from the claims of future relationship partners.
You will be able to make provisions for the future.
You can provide for using residential care and for distributing your wealth among heirs.
With a trust, you can keep the financial affairs of your family confidential.
It is also possible to save on taxes in some cases.
Things to Keep in Mind The setting up of family trusts requires the use of professional services provided by accountants and lawyers.
These services are typically used for the management of the trust as well.
You have to ensure that you will be able to cover the service fees.
Additionally, you have to provide for the payment of taxes.
There are two major risks to consider.
The first one is the risk of the trust being declared as sham.
In this case, the asset transfers and the provisions made will have no legal power.
There is also the risk of family members suing each other on the basis of claims for the breach of the deed under which the trust is governed.
When you work with reliable professionals, these risks are reduced to the very possible minimum Overall, family trusts can be extremely beneficial when they are properly set up and managed.
They are designed to protect the assets of a family.
Does this mean that everyone should use them? You can make this decision after learning how they work, how they can benefit you and what you need to be careful about.
How They Work The family trusts are used for transferring the legal ownership of assets.
The person who creates the trust is a settlor.
The settlor transfers his ownership rights over various assets, typically property, investment portfolios and cash, to the trust.
The settlor can also be appointed as a trustee.
In this case, he will have a say on how the assets are managed.
The appointed beneficiaries, who are typically the family members including the settlor, are entitled to benefiting from the trust.
The idea is that by transferring the ownership of the assets you will safeguard them.
At the same time, you will continue to use them as before.
You will still live in your house, for example.
Benefits and Advantages One of the major benefits of family trusts is to protect the assets from claims and creditors.
If there is a professional liability claim against you, for example, your assets will be shielded.
Similarly, if your business fails, your personal assets will not be affected.
You will also safeguard your assets from unexpected financial disasters and from the claims of future relationship partners.
You will be able to make provisions for the future.
You can provide for using residential care and for distributing your wealth among heirs.
With a trust, you can keep the financial affairs of your family confidential.
It is also possible to save on taxes in some cases.
Things to Keep in Mind The setting up of family trusts requires the use of professional services provided by accountants and lawyers.
These services are typically used for the management of the trust as well.
You have to ensure that you will be able to cover the service fees.
Additionally, you have to provide for the payment of taxes.
There are two major risks to consider.
The first one is the risk of the trust being declared as sham.
In this case, the asset transfers and the provisions made will have no legal power.
There is also the risk of family members suing each other on the basis of claims for the breach of the deed under which the trust is governed.
When you work with reliable professionals, these risks are reduced to the very possible minimum Overall, family trusts can be extremely beneficial when they are properly set up and managed.
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