In continuation to my previous two articles on the importance of Will writing and securing your legacy through estate planning, I am going to talk about the importance of private family trust in this article as part of estate planning.
What is a Private Family Trust?
A private family trust is a legal arrangement in which the owner of the assets, called a grantor, creates a trust and transfers the assets to the trust for the benefit of the family members/other beneficiaries. In the trust, the trustee holds and manages all the assets. The grantor can be the trustee or one of the beneficiaries or both. By law, the trustee acts as the executor of the instructions of the grantor.
Components of a Private Family Trust
The Grantor or Settlor. A grantor or the settlor is an individual or an organization that sets up the family trust. He/She is responsible for the management and distribution of the assets as per the wishes of the settlor. The grantor does the following:
- Adding property and assets to the trust. These assets and property include real estate, cash, financial assets, physical assets say jewelry, etc, or any other assets. We can add the assets at any time during the life of the family trust.
- Assigning beneficiaries to the trust. The grantor will add the beneficiaries to the trust. He will lay down the instructions on the distribution of these assets among these beneficiaries on his/her death. The beneficiaries may be individuals, organisations, or institutions.
- Appointing the trustee. The grantor needs to appoint a trustee who will manage and distribute the assets of the trust as per the instructions of the grantor.
A trustee is a person, appointed by the grantor to manage and distribute the assets of the trust as per the instructions of the grantor. Trustees can be anyone from the family members, a friend, an accountant, or a financial professional. The trustee needs to be a responsible person who can take care of the trust assets.
The responsibilities of the trustee are :
- Administration of the trust as per the grantor’s instructions
- Acts as fiduciary, in the best interest of the beneficiaries
- Management of the assets and record keeping as per the law
- Tax filling in time as per the law
A beneficiary can be an individual(s) or an organisation who benefits from the trust.
Beneficiaries can be the primary and the contingent ones as per the structure of the trust.
Why create a Private Family Trust?
There may be many reasons for an individual to create private family trust, like:
- Asset Protection. It can protect assets from lawsuits, creditors, and other potential risks. A private family trust is a separate legal entity. By transferring the assets to the trust, they are no longer considered personal assets and are shielded from lawsuits, creditors, and other risks.
- Control over Assets. It allows an individual to maintain control over the assets even after they pass away, by specifying how and when the assets would be transferred to the beneficiaries
- Avoiding family disputes. By clearly defining the distribution and management of assets through a trust, the likelihood of disputes and conflicts among family members can be reduced drastically. Unlike a Will, the chances of a family trust getting challenged in the courts are very low and hence it provides a secure succession plan for the family.
- For the benefit of minors and special children. Trusts can be used to provide for beneficiaries who may be unable to manage assets on their own, such as minors or individuals with special needs.
- Continuity of family wealth. The trust can help the families to preserve the wealth and pass it on from one generation to another generation(s)
- Effective tax planning. Private family trusts can provide effective tax planning. It offers opportunities to minimize estate taxes, capitalize on tax exemptions and reduce capital gains tax liabilities.
- Privacy. The private family trust provides complete privacy and confidentiality as against the Will.
A family trust is like creating a secured locker to protect wealth from creditors, lawsuits, and disgruntled members of the family, if any. Passwords to this locker are given to only select people of your choice.
Estate planning is the process of organizing, managing, and assigning your assets in preparation for your death or possible incapacitation. Every individual must look into having the following documents as part of estate planning
- Letter of Guardianship (in case of a minor child)
- Financial Durable Power of Attorney
- Living Will – Advanced health care Power of Attorney
- Private Family Trust
We at, Lets Invest Wisely, a leading financial services firm, managing investments of a large number of Armed Forces personnel, offer you to do your estate planning with us. We have a collaboration with country’s one of the most renowned law firms, NexGen Estate Planners Pvt Ltd, promoted by the American Academy of Financial Management, a worldwide Board of Standards and Financial Professional organization.
You can make your Will both online from the comfort of your home with complete confidentiality and security of your data and customised Will in offline mode with the help of a dedicated lawyer.
If you need to discuss more about this or any issue related to personal finance, book a no-charge consultation with me at this link. (https://calendly.com/rakeshgoyal).
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