Despite being more complicated than other company structures, family trusts are a popular solution for those looking for flexibility, asset protection, and control over their family business. In this piece, we’ll explain how to create a family trust, discuss the benefits and drawbacks of discretionary trusts, and explain why family companies tend to choose them.
Benefits of Family Trusts
- Prevent Probate
Probate is the procedure used to officially prove a Will’s validity in front of a court. The provisions of a trust determine how its assets are distributed.
You can be subject to many Probates, each regulated by the laws of the state in which your family has property. You must pay hundreds of dollars in fees in addition to the wide range of possible costs. Probate is often far more costly than carrying out some simple Estate Planning in advance. You may avoid probate if you have a family trust.
- Capital and income distribution
The trustee of a family trust determines how much income or capital should be distributed to each beneficiary when a distribution is made. This could provide chances for tax planning, such as giving more money to the recipient who has the lowest marginal tax rate.
- Capital gain discount
A family trust may be eligible for a capital gains deduction when selling trust assets that have been held for more than a year.
- Asset protection
Since company assets are held by the trustee rather than the beneficiaries, beneficiary creditors cannot pursue them. A company acting as a trustee may also improve asset protection.