5 important considerations when setting up a trust to protect and grow your wealth
Trusts are documents made to minimize the hassles and fees associated with handing over property titles or assets at the benefit of a third party. A trust attached to a will can be used to direct your assets to specific people and control the amount of money you’ll pay out to them.
A trust can appoint a trustee to carry out your wishes directed in the trust fund. This feature appeals to people who want to ensure their assets are used appropriately.
What to Consider When Setting Up a Trust Fund
Trusts are vital for estate planning, but they aren’t just important for the rich. A trust fund can help preserve your wealth across multiple generations as long as you consider the following.
1. Whether you need a Trust
While it’s easy to convince someone they need a will, trust isn’t always necessary. To consider whether or not you need a trust, take note of everything you own. Then, think of every person or entity you want to give your assets to, either during your lifetime or at the time of your passing.
Would you be able to give these assets without any reservation, either from the government or the people in your life? If there will be infighting amongst your family or you don’t trust anyone enough to handle your assets by themselves, a trust will be integral in your financial planning.
2. Get Specialist Financial Advice
Trusts are legally binding contracts that cover multiple situations, making it in your best interest to set up a family wealth trust with a sophisticated financial advisor. Most people name professional corporate trustees to handle their estate, but that can be a big mistake.
Since banks and trust companies are restrictive with how they handle your investments, they may not distribute them as instructed. However, a professional independent investment advisor can ensure your finances are distributed in a way that maximizes your trust's value.
3. Choose Your Beneficiaries Carefully
Your beneficiaries are the people that get your assets when you die, but you need to be careful who you choose. If you want to give something to a beneficiary, but you’re not sure if they’ll use your assets responsibly, add a caveat in your trust that directs how they can use it.
Even if you place total trust in your beneficiaries, there are still ways the government or insurance companies can mess with your estate planning. For example, retirement or savings account disclaimers could conflict with your trust. Consult with an attorney if this is the case.
4. Pick a Guardian for Your Children
An often overlooked trust component involves kids, usually because trusts are typically made by seniors without minor children. However, if you’re making a trust and you do have young children, or you have custody over your grandchildren, it’s important to appoint a guardian.
Be mindful of who you choose because your appointed guardian will have full custody of your children after you pass. Make sure to include this information in your will if you want to give your guardian any of your assets, which is likely. Otherwise, they may be excluded from your will.
5. Revocable vs. Irrevocable Trusts
A revocable trust (living trust) allows you to place assets in your trust while you’re alive. A living trust is beneficial if you want someone to accept management responsibility for your property, protect your assets from incompetence, or minimize the chance your will is contested.
However, a revocable trust will keep your asset out of probate, meaning your beneficiaries are subject to high estate taxes. If you have a lot of assets, use an irrevocable trust. While it can’t be altered once it’s made, it protects your beneficiaries from probate and estate taxes.
