It’s not fun to think about, but the conversation about what will happen to your wealth and assets in the event of your death is a tough one every family should have and a situation that is generally easier to navigate when it’s been prepared for.
That preparation involves a comprehensive estate plan.
At PAX Financial Group, we are asked about estate planning, specifically family trusts, quite often. We know this topic can be difficult, but planning now for what could happen in the future actually gives our clients – and their loved ones – peace of mind, knowing they will be provided for in the future. Having a comprehensive estate plan also helps ensure that your assets will be distributed among your heirs in the manner you specify.
While most people understand the basic concept of a will (don’t forget these 2 elements), a trust can be more complicated.
PAX Financial Group offers some clarification.
Have estate planning questions? Contact PAX Financial Group to see how we can help.
What is a Trust?
A trust is a legally binding document or arrangement where someone, known as a trustee, manages the assets of the trust’s creator, on behalf of one or more beneficiaries. With a trust, you are able to pass on assets – real estate, life insurance policies, cars, art, investments, cash, etc. – to beneficiaries, usually family members, close friends or charitable organizations, distributed in amounts and on timelines you determine when you establish the trust.
The Difference Between a Will and a Trust
A trust is often established in addition to a will, but occasionally, in place of one. A will is a written plan to distribute your wealth, as well as set up other legal arrangements, like guardianship of children, whereas a trust essentially makes sure your assets are allocated according to your intentions.
The differences are few, but significant. A will doesn’t legally go into effect until your death, and your heirs won’t receive your assets until then. A trust, on the other hand, goes into effect as soon as you create it, and you can begin to distribute your wealth at any point (during your lifetime or after your death) if you choose.
What is a Family Trust?
A family trust is a special type of trust established to benefit the relatives of the grantor (the trust’s creator). You might consider creating a family trust if your plan is to keep your wealth and assets within your family, both now and for future generations.
Generally, when people talk about a family trust, they’re usually referring to a joint tenancy revocable trust, in which a couple designates each other as grantors, trustees and beneficiaries during their lifetimes, with surviving members of the family, either by blood, marriage or adoption, becoming the beneficiaries.
With a revocable trust, you have the option to make changes to or revoke the trust at any time. In this case, the ownership of assets would revert from the trust back to the grantor. Revocable trusts are also known as “living trusts,” and if the grantor passes away, a revocable trust automatically becomes irrevocable.
While the grantor is alive, he or she is often appointed as the trustee of the living revocable trust, because it affords ultimate control over your own assets during your lifetime.
Once an irrevocable trust is established, you will not be able to modify or undo it. An irrevocable trust is often used to remove certain assets from your estate, thereby minimizing tax liability, or creating a “safe haven” for certain assets, protecting them from creditors.
The Benefits of Forming a Trust
A few reasons you might want to set up a trust for your family, beyond the obvious (to provide for them in the event of your death and to pass on your financial legacy to future generations), might include managing estate taxes, and more privacy and control over asset distribution than a will offers.
With a trust, you also have more flexibility and control over the distribution of your assets. In other words, you decide who gets what, and precisely when.
For example, you can decide that your assets will be divided equally among your children, and that they will receive their inheritance in quarter increments at age 25, 35, 45 and 55. Or you can choose to have the entire amount withheld until they reach a certain age. You can even outline a plan to designate the management of your personal or business assets, in the event that you become incapacitated and can’t manage them yourself.
Trusts are usually not subject to the same lengthy probate process that wills often have to go through.
By law, the executor of your will gathers your assets, takes care of any outstanding debts, then distributes remaining assets to your beneficiaries, according to your will and state inheritance laws. This whole process is a matter of public record.
A trust, on the other hand, does not have to go through probate court, which means your assets can usually be transferred to your beneficiaries more quickly and with potentially fewer legal fees, court costs and taxes.
When it comes to taxes, individuals with a higher net worth will also appreciate that a family trust can help minimize the gift and estate taxes to which the estate will be subject, allowing them to leave behind a more substantial chunk of their financial legacy to their loved ones. Certain types of irrevocable trusts offer different tax advantages, and may be able to help you minimize or avoid estate taxes altogether. These options are complex and mistakes are extremely problematic, so it’s wise to work with a financial advisor and an estate planning attorney if you decide to set up this type of trust.
The tax laws related to estate planning can be extremely complicated. And they can vary from state to state. Estate planning in San Antonio, for example, may look different than estate planning somewhere else. Trying to figure it out on your own can be risky.
How PAX Financial Group Can Help
Unfortunately, according to reports, 68 percent of Americans don’t even have a will, let alone a comprehensive estate plan.
If you’re ready to start (or update) your estate plan to include a family trust, contact the financial advisors at PAX Financial Group to see how we can help. We can help you decide which type of trust to set up, who you want to designate as a trustee and who your beneficiaries will be. We will then work with your estate planning attorney to create a trust agreement that transfers ownership of your assets into the trust. Our team is ready to help guide you in customizing the most comprehensive and detailed estate plan that works for you.
For other steps on how to help protect your family in the event of your death, read our recent blog post: How to Protect Your Dependents in 10 Steps.
This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.
