Family Trust: Understanding the basics

A family trust is a legal setting where an individual or a company agrees to hold and protect the assets for benefitting others. The main aim behind handing over the assets is to avoid, delay, or mitigate taxes and safeguarding the assets.

The person(s) who get the advantage of this trust is generally the family members of the grantor such as blood relations, spouse, or a lawful member of the family in case of adoption.

This legal device is usually created by the families themselves. Also known as a discretionary trust, a family trust invest in the trustee the power to curate the manner in which income and capital gains from the trust will be distributed between the beneficiaries.

Read on to find out the key features of a family trust!

 

Types of Family Trusts

There are two ways for defining the types of family trusts; on the basis of documented and according to the amount of powers invested in the grantor.

Categorizing family trusts based on documents:

Inter Vivos Trust: An inter vivos trust or a living trust implies that the documentation of the trust is done while the grantor is alive and breathing.

Testamentary Trust: This type of trust is created as the grantor’s will or as the only testament of the grantor’s assets. It is an irrevocable trust because it only transfers the responsibility of managing the assets to the beneficiary.

Family trusts classified in accordance with the grantor’s power

Revocable Trust: Revocable trust is the type of trust where the grantor has the power to cancel or nullify the trust. The revocation of assets reverses the control over the assets back to the grantor from the beneficiaries.

Irrevocable Trust: On the contrary, irrevocable trust does not give the grantor the power to have the assets back. However, it is possible when both the trustee and the beneficiaries agree on the prospect of revoking the trust.

 

Parties involved in a Family Trust

A family Trust Registration Service is a legal arrangement where an individual gives the ownership of the assets to a third party, which in turn, agrees to hold and manage them for the benefit of other family members.

Here are the key parties of family trust.

Trustee: Trustee is an individual or a company listed as the lawful owner of the assets of the family trust. He holds the responsibility of the trust and its creditors; he is answerable to the creditors of the trust.

Beneficiaries: Beneficiaries are the parties to the trust who get the income and gains from the assets. If the trustee of the assets nominates one or more beneficiaries, then they get entitled to the monetary benefits of the assets but they do not have control over the trust.

Settlor: Settlor’s role is only limited to staging the whole arrangement of a family trust. In order to create a family trust, the settlor gives assets to the trustee by signing the trust deed. After the trust is created, the settlor has no interest involved in the family trust.

Appointer: Appointer is the person appointed to appoint and replace the trustees of the family trust. This person has full control over the assets but do not take part in the regular running of the trust. Instead, the trustee looks after the day-to-day workings of the trust.

The bottom line

Family trusts can be used for handing both tangible and non-tangible assets. The main advantage of a family trust includes the tax benefits and effective distribution of income between the family members. The trust deed signed by the parties is the main instrument that governs family trust.