Why should you set up a family trust?


Quick Answer

Individuals set up family trusts because they allow for more control of family finances and because they reduce taxation. Family trusts offer flexibility and can be crafted in a way that best suits the investor. Trusts also provide increased protection against creditors and lawsuits, reports CNN.

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Full Answer

Trusts make the most sense for families with a net worth of at least $100,000, especially if those assets are in real estate, a business or collections of art, according to CNN. Trusts allow for detailed instructions on dispersal of funds and conditions that need to be met before family members have access to the estate. Monies can be allocated for individuals once they reach a certain age or upon their meeting of requirements such as obtaining a college degree. Individuals often create trusts for purely financial reasons such as to increase estate-tax exemptions, to avoid spending large sums on probate court, and to reduce estate and gift taxation. For example, a credit-shelter trust allows individuals to pass on their estate to their spouses tax-free.

Other varieties include generation-skipping trusts, which can allocate funds to grandchildren as opposed to children. Like all trusts, exceeding the exemption limit may lead to taxation of the estate, says CNN.

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