Creating a family trust is an important element of estate planning. A family trust enables you to reduce the tax burden of your beneficiaries and ensures that they do not have to go through probate to inherit your estate. The most popular types of family trusts are revocable trusts and irrevocable trusts. As the name suggests, a revocable trust is one whose terms are changeable and is dissolvable by the creator of the trust, known as a “settlor”. An irrevocable trust, however, is a trust whose terms can’t be changed and which can’t be dissolved. This is what distinguishes revocable from irrevocable trusts. In this article, we will discuss just how you can create a family trust.
Choose Between a Revocable and Irrevocable Trust
It is uncommon to create an irrevocable trust, primarily because the settlor often wishes to retain some flexibility in changing the terms of the trust. However, this does not imply that it is unwise to create an irrevocable trust. There are certainly strong arguments to be made for either type of trust.
Determine How You Will Fund the Trust
A trust needs to be funded. This means that you have to figure out what assets you will place under the trust. Often, people choose to fund their family trust with all their assets. You may, for whatever reasons, prefer to fund your family trust with only a portion of your assets.
Select the Trustee and beneficiaries
Now, you can appoint yourself the trustee of your trust. The trustee is the person who manages the trust’s assets. WHile you are alive, it may not be appropriate for you to cede management of your assets to a third party. WHat you have to do is appoint a successor trustee who will take over the management of the trust in the event that you are incapacitated or pass away.
You also need to nominate the beneficiaries of your trust. As the name suggests, these are the people who will benefit from your trust upon your passing.
Define the Terms of the Trust
This essentially means that you articulate what your wishes are in terms of how your assets will be distributed. Not only do you articulate how your assets will be distributed, you also place restrictions and define when each beneficiary can benefit from your trust and how. For instance, you may have an underage child who cannot manage anything you leave them until they are 18. You can nominate someone to manage their share of your assets on their behalf and define how that person manages the inheritance.
Draft Your Trust Document
This stage is where you write down the terms of the trust, nominate your trustee and beneficiaries, and state how the trust will be funded. The trust agreement must be signed before a witness for it to be legally binding. Seek legal advice when drafting your trust document.
Visit the Setting Up a Family Trust website to learn more about how you can start a family trust.