What Is A Family Trust And How Do You Set Up In USA

Family Trusts are an instrument of succession planning in the United States of America (USA) apart from Wills. They are tools that ensure, and ring fence your assets for your family and your future generations, ensuring that they inherit assets with ease. These instruments are known to be customizable and depending on how you wish to structure them, they may carry other tax benefits as well.

First and foremost, the United States Trust Law is the body of law that governs the legal instruments relating to the subject matter of Trusts. Essentially in the US, State laws create legal interests and rights, whereas federal law designates what interest or rights shall be taxed. We shall delve deeper into these elements further in this article wherein we’ll learn about family trusts, how they work and how do you set up one?

What is a Family Trust?

Typically, the concept of trust holds the basic elements of a contract. A Family Trust is a type of trust that lists one or more family members as your beneficiaries. It is a legally binding estate planning instrument that structures who will inherit what and how.

In the US, Trusts in general are a major form of organisation for federal tax purposes along with corporations and other entities.

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Before understanding more about Family Trusts, it is primal to understand the legal framework:

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State Laws:

Trusts are governed primarily by the state laws. Each State will have its own set of statutes and regulations that lay down provisions as to how a trust should be incorporated, governed, managed and terminated.

?A common framework that is referred to in the establishment of a Trust in the USA is Uniform Trust Code (UTC), which many states have adopted either wholly or in part.

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Federal Laws:

Matters related to taxes are governed by the Federal Laws. The Internal Revenue Code (IRC) provides how a trust should be taxed and various provisions regarding deductions and exemptions are listed.

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A Family Trust typically will involve the following parties namely:

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1. Grantor: The person who sets up a trust and transfers his assets.
2. Trustee: The person or entity who is responsible for managing and distributing the trust’s assets, as per the grantor’s wishes. Here, he is the legal owner of the property and he must use it for the benefit of the beneficiaries.
3. Beneficiary: The person(s) on whom the assets will be endowed. The term ‘beneficiary’ under the Uniform Trust Code is defined as-

a.????? A person that has a present or future beneficial interest in a trust, vested or contingent; or

b.????? In a capacity other than that of trustee, holds the power of appointment over trust property.

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Family Trusts are primarily of two kinds namely:

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1. Revocable
2. Irrevocable

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Some other types of trusts that are popular in USA are:

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1. Charitable remainder annuity trusts
2. Special needs trusts

1. Domestic asset protection trust

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Let’s look at each one of these in detail:

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A Revocable Trust is where the grantor can make changes to the trust during his lifetime, such as amendment with regards to addition or deletion of a beneficiary. This provides flexibility to some degree.

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An Irrevocable Trust on the other hand is a trust which cannot be dissolved. The biggest advantage of this kind of trust is that it provides greater protection from creditors and provides tax benefits.

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A Charitable Remainder Annuity Trust is more like an irrevocable trust. Here, you set up a trust and for instance the primary beneficiary of the trusts could be your family members. The primary goal of the trust is to receive income and then the remaining assets are allotted to the charity of your choice.

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A Special Needs Trust is a trust, wherein if you have a child or a family member who is specially abled you can set up a trust wherein these specially abled individuals are eligible to receive benefits from the government and this trust is specifically meant to cater to the needs of the specially abled person.

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A Domestic Asset Protection Trust (DAPT), also known as a self-settled trust can be set up to protect your assets from any creditors or liabilities, however this trust is not an option available in every state in the USA.

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These were some of the many types of trusts available to safeguard your assets. Let’s look at how we can set up a Family Trust in the USA?

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A Family Trust fund is a complex legal structure, so it's recommended that you should consult an estate planning attorney. We at Water & Shark help individuals to plan their estate in a manner that safeguards their assets and caters to their needs specific to each client.

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The following are the brief steps to setting up a foundation:

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1. Documentation: You will first need to ensure all the essential information and documents are in place such as our property deeds, account statements and other investment details.
2. Choosing a Trustee: You need to choose who will be the trustee of the trust, it could be your family member, friends, legal practitioner or an entity.
3. Drafting of Trust Related Documents: An estate planning attorney will help you outline the terms and conditions of the trust, including how assets will be managed and distributed. Your attorney will ensure you meet all the requirements and documentation.
4. Notifying the beneficiaries: A constructive notice to a beneficiary ensures that the existence of the trust is intimated to the beneficiaries this also ensures to avoid any future conflicts.

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In conclusion, a Family Trust is an estate planning tool to ensure that you are covered, and your family is safeguarded from any future litigation. A trust holds various advantages over a will, including complex administrative processes of probate etc. Moreover, the process of setting up to ensure that your trust is compliant with all the regulatory norms requires legal expertise which is where Water and Shark Legal ensures that we cover you on all fronts from advisory to execution of your trust. We guide you throughout the process catering to your specific needs.