When it comes to estate planning, there are a variety of different options to choose from. One option that you may want to consider is setting up a family trust. But is this right for you? Here are some things you need to know about family trusts before making a decision.

What is a family trust?

A family trust revolves around three parties: a grantor, trustee and beneficiaries. The grantor is the one who creates the trust and puts their assets into it. The trustee then manages these assets on behalf of the beneficiaries, who are the ones that will receive some sort of financial perk from the trust--kind of like how someone would from a life insurance policy.

As you might guess, your family members are listed as beneficiaries in a family trust. That implies your children, grandchildren, siblings, aunts and uncles, nephews and nieces, cousins or other relatives may be beneficiaries. Spouses can also be included in family trusts.

Family trusts are one type of living trust. Depending on your preferences, they can be revocable or irrevocable. A living trust is a legal instrument that takes effect during your lifetime and enables you to carry out tasks such as managing finances, property, and other assets in the future while avoiding probate (the process of transferring title to property from an individual to another after death). A revocable family trust allows you to act as your own trustee; if you become incapacitated or pass away, you may replace the successors with anyone else who agrees. An irrevocable trust requires you to name someone else to serve as the trustee.

What is a family trust used for?

Family trusts can be used for different purposes, depending on the trustee’s discretion and state law. Some common uses include:

• To provide for a minor’s financial needs or future education expenses
• To manage property held in the trust until beneficiaries are of legal age
• To protect assets from creditors or ex-spouses
• To minimize estate taxes

Special needs

If you have a children or other family members who requires specialist medical care, you might establish a trust for them. Setting assets in a special needs trust preserves their eligibility for government-sponsored disability benefits like Medicaid.

How to set up a family trust

The legal process of setting up a family trust can vary depending on the state in which you live and the complexity of your assets. You'll likely need to consult with an attorney to ensure that the trust is properly written and funded. You'll also need to name a trustee and beneficiaries, as well as determine whether the trust will be revocable or irrevocable.

Advantages of a family trust

There are several advantages to setting up a family trust. Here are some of the most important ones:

Avoid the probate process

Helping your family members (beneficiaries) avoid probate is one of the main reasons to set up a family trust. Probate is the court-supervised process of distributing a decedent's assets after death, if they do not have a will or if their estate exceeds the limit established by each state's government. Anything that happens during probate is recorded in public and can be time-consuming and expensive. So, by transferring assets to a family trust, you may make life much easier for your family members in this way.

Protect assets

Another advantage of setting up a family trust is asset protection. If you set up an irrevocable trust, the assets in the trust will be shielded from your creditors (although there are some exceptions). This can be helpful if you're worried about losing your assets to creditors or ex-spouses.

Minimize estate taxes

Another benefit of setting up a family trust is that it can help you minimize taxes. When you die, your estate will be subject to federal and state taxes. However, if you set up an irrevocable trust, the assets in the trust will not be included in your estate for tax purposes. An irrevocable family trust can protect your assets from creditors while reducing taxes after you die, ensuring that more of your wealth is passed down to future generations.

Quick process of succession

If something happens to you and you haven't set up a family trust, your assets will have to go through probate. This can be a long and expensive process. However, if you have a family trust, the succession process will be much quicker and easier because the trustee can simply transfer the assets to the beneficiaries (family members) without having to go through probate.

Disadvantages of a family trust

There are also some disadvantages to setting up a family trust. Here are some of the most important ones:

Cost and complexity

One of the main disadvantages of setting up a family trust is that it can be costly and complex. You'll need to hire an attorney to help you set up the trust and fund it properly. In addition, you'll need to name a trustee and beneficiaries and determine whether the trust is revocable or irrevocable.

Loss of control

Another disadvantage of setting up a family trust is that it can cause you to lose some control over your assets. Once you transfer assets to the trust, you will no longer have direct control over them. The trustee will be in charge of managing the assets and making decisions about how they are used.

Limited asset protection

If you set up a revocable trust, it will not provide you with much asset protection because the assets in the trust are still considered to be part of your estate. So, if you're looking for asset protection, you'll need to set up an irrevocable trust.

Common questions about family trusts

What is a Probate Trust, and how does it work?

A Probate Trust allows an individual to entrust an asset, such as an insurance bond, into trust and maintain control and access. Its major objective is to allow immediate family access on the death of the person.

Do I need a lawyer to set up a family trust or can financial advisors do the job?

You can certainly set up a family trust without a lawyer, but it's often a good idea to have one involved. An attorney can help you make sure the trust is properly funded and executed, and can provide advice on naming beneficiaries and trustees. Financial advisors can also help you set up a family trust, but they may not be as knowledgeable about the legal aspects of trusts. So, if you're looking for expert advice, it's best to consult with a lawyer.

Who should be the trustee of my family trust?

The trustee of a family trust is responsible for managing the assets in the trust and making decisions about how they are used. It's important to choose someone who is trustworthy and has the necessary skills and knowledge to manage your assets effectively. You may want to consider appointing a family member or friend as trustee, or you can hire a professional trustee company to take on this role.

Can I change my mind after setting up a family trust?

Yes, you can change your mind after setting up a family trust. However, it's important to remember that once the assets are transferred to the trust, you will no longer have direct control over them. The trustee will be in charge of managing the assets and making decisions about how they are used. So, if you're thinking you might change your mind, it's best to do so before transferring any assets to the trust.

Can a Trustee Remove a Beneficiary of a Trust?

In general, trustees do not have the authority to modify a trust's beneficiaries. The power to add and remove beneficiaries is held by the trust's creator (grantor); when they pass away, their trust will usually become irreversible. To put it another way, a trustee's primary duty is to carry out the wishes of the grantor—not to second-guess them. However, there are some circumstances in which a trustee may have the authority to remove a beneficiary. These usually involve cases of fraud or other illegal activities. If you're concerned about this issue, it's best to speak with an attorney.

How do I fund a family trust?

There are a number of ways to fund a family trust. You can transfer assets such as cash, stocks, or property into the trust. You can also make contributions to the trust on a regular basis. It's important to remember that the trust must be properly funded in order to be effective. If you don't have enough assets to fund the trust, it may not be worth setting it up.

What is the difference between a will and a trust?

A will is a document that dictates how a person's assets should be distributed after they die. A trust is a legal arrangement in which assets are transferred to a trustee who manages them for the benefit of the beneficiaries. So, one key difference between a will and a trust is that a will only covers assets that are owned by the person who dies, whereas a trust can cover any type of asset, including property and money. Another key difference is that a will goes through probate, while trusts do not. Probate is the legal process of distributing a deceased person's estate according to their will. So, if you're looking for a way to avoid the probate process, setting up a trust is the way to go.

Next steps

If you decide that a family trust is right for you, take the time to understand the different types of trusts and how they can be used to achieve your estate planning goals. Working with an experienced estate planning attorney can help ensure that your trust is properly created and funded so that it can operate as intended.

Book a consultation with New Jersey estate planning attorney Benjamin Eckman by clicking here: Book a Call