Whether you’re an ultra high net worth investor or have a more modest estate, planning for how your wealth will be managed after you’re gone is important. It provides peace of mind and a way to look after those you care about most, far into the future. If you’d like to protect your wealth and those you care about, setting up a family trust fund could be your best move.

What Is a Trust Fund?

A trust fund is a legal entity that holds property for the benefit of another entity. In simpler terms, it’s a way for someone to pass on their assets (cash, stocks, bonds, mutual funds, real estate, etc.) to a beneficiary while protecting the assets and people involved.

There are three main parties partaking in any trust fund. They are the grantor, the trustee, and the beneficiary.

The grantor is the person who creates the trust fund. He or she donates assets to the trust and decides how it is to be managed.

The trustee is the legal entity responsible for holding on to the assets that the grantor has donated. This can be a single person, multiple trusted advisors, or another qualified organization such as a bank. The trustee is responsible for managing the trust fund in accordance with the instructions that the grantor has provided in detail.

The beneficiary is the person who will benefit from the trust. It’s important to note that the beneficiary does not legally own the assets while they are in the trust. This is part of what makes a trust fund a uniquely beneficial way to pass on wealth.

A family trust fund is one that is set up to benefit the grantor’s family members. This means the beneficiary is someone related by blood, marriage, or law to the grantor.

What Are the Advantages of a Trust Fund?

The potential advantages of setting up a trust fund are many. It can help shield your money from taxes, help you look after your family members, and protect your beneficiaries from bankruptcy.

Tax Breaks

There’s more than one way setting up a trust fund can protect your wealth from taxes. It’s possible to make the assets you donate to a trust exempt from gift and estate taxes. This makes it one of the most financially savvy ways to transfer wealth.

Another way to mitigate taxes is to set up a trust fund dedicated to a charity. Setting up a Charitable Trust is a way to shield your money from massive taxes while benefiting a charity that is important to you.

Provide for Your Loved Ones

One of the fundamental elements of a trust fund is the instructions that the grantor gives to the trustee. These instructions can ensure that the trustee will look after your intentions, even if you’re not around.

For example, if you want to be sure that your children or grandchildren are able to receive a quality education, you could set up the trust to do just this. As the grantor, you can decide that the trustee should only release the funds in the trust to pay for schooling.

This is just one example. You could also stipulate that the funds are only for buying a house, or even for your beneficiary’s retirement.

Protect Your Family Members

In addition to providing for your beneficiaries in the way that you want to, setting up a trust fund will also enable you to protect them.

For example, you might wish to pass wealth on to someone who doesn’t have as much life or business experience as you do. It can be difficult for some people to manage a sudden windfall in a responsible manner that takes into consideration their future. Instead of worrying about how your family member will handle their wealth, use the trust fund to put you at ease.

Family trust funds should benefit family members, and sometimes that means placing restrictions on them. One such restriction used often is to prohibit the beneficiary from using trust fund money to pay off debts. This is a smart way to make sure that your children or grandchildren don’t squander their inheritance, even if they make questionable decisions from time to time.

What Are the Benefits of a Living Trust?

A living trust is one set up to benefit the creator of the trust while he or she is still living. Once the trust creator passes on, the assets in the trust are distributed to the chosen beneficiaries. The designated successor trustee is who will distribute the assets.

A living trust can be either revocable or irrevocable. A revocable living trust is one that the grantor change or cancel entirely during the lifetime of the trust creator. Conversely, an irrevocable living trust is one that the grantor cannot alter or cancel once it has been created.

Avoid Probate

A notable benefit of having a living trust is that it enables you and your family to avoid probate. Probate is the legal process by which your assets are distributed to beneficiaries. This process involves the court and can be lengthy and expensive.

With a living trust, however, the designated successor trustee is able to distribute the assets to beneficiaries without court intervention. This potentially saves a great deal of time and money.

Added Privacy

The terms of a trust are private. It is a private document between the parties of the trust and therefore not part of public record. This makes a living trust a good option for those who value privacy and don’t wish the distribution of their estate to become public information.

Are a Living Trust and a Living Will the Same Thing?

There’s a big difference between a living trust and a living will. Where a living trust affects how your assets are handled before and after death, a living will doesn’t affect your assets or have any power after death.

You would use a living will to instruct end-of-life medical care. It provides the creator of the will’s wishes for how they are to be cared for in case they become unable to communicate it themselves. This includes which treatments they prefer and which they don’t.

Should I Use a Living Trust or a Will?

Many of the benefits listed above are also the key differences between a living trust and a will.

Setting up a last will and testament is less expensive in the short term, but a living trust can offer greater money-saving opportunities in the long run. With a living trust, your family will be able to avoid probate, saving time and money.

Wills also don’t offer the same level of privacy that living trusts do. A will is public record, and won’t keep how your estate is distributed private.

Choosing Between Revocable and Irrevocable

As mentioned earlier, trusts can either be revocable (its terms can be changed at any time) or irrevocable (the terms cannot be changed).

But why would you choose one over the other? The answer is mostly concerned with control and financial benefit.

The benefits of a revocable trust are immediately evident. It’s a trust that can be changed, so it offers a great deal of flexibility. This may be the best option for someone wishing to set up a living trust that will facilitate the distribution of their assets in the case that they become unable to do so. The tradeoff for such a high level of flexibility is that the tax benefits for the creator of the trust are limited.

An irrevocable trust is a different beast altogether. Offering no flexibility once it is created, it is for those who are sure they want to permanently relinquish control of their assets in order to reap other benefits. Long-term benefits from irrevocable trusts often come in the form of fewer taxes on your estate.

So, if this is your aim, it’s important to enlist the help of a qualified and experienced professional you can trust. The process is complex and you’ll want an expert by your side. Irrevocable trusts can also protect you and your beneficiaries from certain liabilities. This option is usually best suited to people with higher net worth.

Are You Ready to Set Up a Family Trust Fund?

If you’ve decided that you want to protect your assets and your family for years to come by setting up a family trust fund, you’ll need to make a few decisions.

The first step is to choose between the different types of trust funds available to you.

Do you want a revocable living trust that will give you flexibility and allow your family to avoid probate? Or maybe an irrevocable trust fund is best for your situation and will provide lasting financial benefits.

These are questions that trusted wealth managers can help you with.

Once you’ve settled on the right trust for you, it’s time to work on defining the terms of the trust. In addition to naming the trustee and the beneficiaries, you get to set up the way in which the assets of the trust are handled.

Do you want to provide for a beneficiary’s education or safeguard them from debt collectors? Whatever is most important to you, this is where you get to make sure it’s taken care of.

However you choose to protect your wealth, remember that professional guidance will provide you with the best options available to you. The right wealth management partner will make these options clear and easy to understand so that you can choose the financial services that will serve you best.

Finding a financial advisor who takes the time to get to know you and treats your financial decisions with respect is the wisest move you can make in wealth management. Schedule a meeting with us here to learn more.