A “family trust” sounds like something for wealthy families, and it’s true that many people with significant assets do have a family trust. But you may know these trusts better as living trusts, and they can benefit families of all types, regardless of their level of income or assets.
A family trust has three roles: the trustmaker (also known as the settlor or grantor), who contributes assets to the trust; the trustee, who manages and distributes trust assets; and the beneficiary or beneficiaries, for whose benefit the assets are managed. These roles may be filled by different people or entities, but often, at least initially, the person or people who created the trust also manage the assets in it and receive distributions from the trust. The term “family trust” may be used to distinguish living trusts in which two people, such as a husband and wife, are joint trustmakers, trustees, and beneficiaries, from a trust established and managed by one individual or two separate trusts for a couple.
Why would someone go to the trouble of creating a family trust just to have what seems like the same control over assets as they did before the trust was created? There are a number of reasons.
Benefits of a Family Trust
One benefit of a family trust is that it allows all the assets contained in the trust to bypass the Colorado probate process, saving time, money, and inconvenience. If a couple owns assets in multiple locations, such as a primary residence in Colorado and a vacation condominium or rental property in another state, they avoid having to deal with probate in that state as well, a process known as “ancillary probate.”
Another advantage of a family trust is that it allows you to place conditions on how and when your assets are distributed after your death and that of your spouse. Depending on how the trust is structured, it may also be able to protect your beneficiaries’ assets from creditors and lawsuits (including divorce), this type of planning can be referred to as “Asset Protection.”
Many people assume that trusts are created for tax purposes, but the mere creation of a trust may not have any tax advantages. However, depending on your needs, a trust can be set up such that it reduces or eliminates estate and gift taxes. In fact, this is the reason that perpetual, or dynasty trusts, were created.
A family trust also names a successor trustee who will manage the trust after you die or become disabled, allowing for a seamless transition. For most people, knowing that someone trustworthy is prepared to step in at a moment’s notice offers great peace of mind.
Is a Family Trust Right for Me?
If any of the benefits listed above appeal to you, it’s worth discussing a family trust with an attorney. In general, a family trust is a good idea for people with at least $100,000 in assets, which includes most homeowners, and who:
- want to avoid heirs having total and immediate access to their inheritance, or want to place conditions on receipt of assets;
- want to make sure a surviving spouse is provided for, but also want to make sure children from a previous marriage receive their share of an inheritance;
- want to provide for a child with special needs or another relative with disabilities without causing them to be disqualified from receiving government benefits due to an inheritance;
- have significant non-liquid assets such as real estate or a family business;
- want to make maximum use of federal and state estate tax exemptions.
- When thinking about trust planning it is important to remember, “it is not how much you have – it is how much you care.”
If you meet one or more of the criteria above, you should give serious consideration to creating and funding a family trust. Contact the experienced estate planning and probate attorneys at Davis Schilken at 303-670-9855 to arrange a consultation at one of our two locations in The Denver Tech Center and Golden, Colorado. Our attorneys can help you determine whether a family trust is right for you, customize it to your needs, and assist you in making sure it is fully funded so that it will achieve your goals.