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Would A Family Trust Fund Benefit You?

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Would A Family Trust Fund Benefit You?

Setting up a family trust, also known as a discretionary trust, is something that needs to be carefully considered due to the various pros and cons that are associated with this asset protection plan. Although the money will be safeguarded from certain undesirable situations, including the bankruptcy of one of the affiliated family members, it can also be taxed at a high percentage if certain guidelines are not met.

What Is A Family Trust?

With a family trust account, you can set up a shelter for a designated portion of each family member’s income and assets. The applicable funds will be transferred into the account, and it can then be assigned to specific family members who have the most desirable tax standing. For example, if one of the family trust members has a high net capital gain and marginal tax rate, they would be well-suited to utilize any applicable foreign tax credits that are associated with the trust account.

Should My Family Get A Trust Fund?

There are several things to consider before your family makes the decision to move forward with a trust fund. Perhaps the most important thing to decide is exactly how you expect your money to perform. After all, if you are looking for a long-term savings account that will provide each family member with a large payout in several years, a family trust is not the best idea. In fact, any undistributed income that is accumulated into your trust will be taxed at 45 percent. Therefore, you need to make sure that every penny of the trust account is properly accounted for.

One of the best aspects of using a family trust is that the group will have the ability to maintain a strong level of indirect or direct control over the applicable funds and any other assets that each person affiliated with the trust acquires. The family will also be able to determine exactly how all of the related income and assets should be distributed among the trust members. As previously mentioned, a family trust can become an invaluable tool if one of the members becomes insolvent or files for bankruptcy. In fact, the trust will protect every other person in the family from dealing with any of the financial difficulties of another member.

Setting up a Trust

In order to set up a family trust, each member must have a detailed list of the assets and income that they are going to put into the account. It is also important to select an outside source such as a bank to act as a trustee. Each of the beneficiaries of the account must be named, and any specific guidelines that dictate their behavior must be put in writing. The Deed of Settlement will also allow you to list specific guidelines that the trustee will need to adhere to, and it is imperative to utilize a local attorney who specializes in family trust funds to ensure that the deed is properly worded. Finally, you need to determine which assets will be sold to trust.

Setting up a family trust fund can be a daunting decision. Get all the facts in order then, once all of these steps have been completed, you can successfully begin the process of building a family trust that everyone can benefit from.

Family and finances are always important factors in life and Nadine Swayne forwards this advice to those contemplating a family trust fund.

Photo credit: http://www.flickr.com/photos/76029035@N02/6829399797/

 

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