Senior members of a family office who plan for the future are increasingly turning to trusts as a valuable tool to guide their financial legacy. Trusts offer a way to guide the transfer of wealth to family members in a responsible manner and in accordance with your wishes. For example, if you want to ensure that your children receive financial support, but you want them to use their inheritance for college, a trust lets you specify how the funds are to be used. Trusts can protect assets from your beneficiaries’ creditors, reduce estate taxes, and ensure that your assets are distributed without probate delays.
Disposition of Assets
Trusts provide a vehicle for defining how assets should be distributed upon your death. With trusts, you can determine whether assets are immediately distributed or allocated in set amounts to your children and grandchildren. Does a member of your family have special needs? A trust can ensure ongoing care that meets their needs throughout their lifetime. You can also prevent minors from accessing funds until they reach a certain age or specify that assets remain in the family in the event of a divorce or remarriage.
One word of caution—communication is key. Explaining your wishes now will alleviate emotional turmoil among future generations. If children don’t learn the terms of the trust from you, there may be unintentional hard feelings that threaten business continuity and family bonds.
Consider trusts as a way to have control over the disposition of your assets in a private manner. The probate process is often very time-consuming, which can prevent funds from being distributed according to your wishes. By placing your assets in a trust, your family will avoid this potentially drawn-out (and costly) process. Some family offices prefer to keep the details of their assets confidential. Revocable living trusts can be used to shelter this information, such as details about your property and family addresses, from public records.
You likely have several charities you have supported over the years. There is no reason your support can’t continue for many generations to come. Instead of leaving these decisions to future generations, who may have causes of their own, you can establish a charitable trust, which is a non-tax-exempt irrevocable trust. There are many different types of trusts you can establish to ensure your continuing support of the causes in which you believe. Your advisor can steer you to the right trusts as part of the estate planning process.
As we’ve discussed, trusts can help you achieve specific business and personal goals for your family office, now and for generations to come. As part of your long-term business strategy, trusts can help decrease your tax liability. For example, an irrevocable life insurance trust (ILIT) allows you to separate funds from the taxable portion of your estate. Your family members will still receive these funds—they just come from a different part of your estate. There are other types of trusts that can be structured to be tax-preferential for future generations. Check with your advisor to learn more.
Setting up a trust can protect your business interests now and for generations to come. Personal and business trusts vary based on your individual circumstances and preferences. Working with your advisors, you can choose what is best for the future of your business and your family.
GPP’s Family Office Services are geared to offer comprehensive strategic insight and operational services to family members, family entities (e.g., trusts, LLCs, limited partnerships), and designated family representatives. For more information, contact Michelle Johnson at 214-635-2601.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.