How To Draft Family Trusts

A trust is a legal arrangement that sets out the allocation of a person’s assets. In a trust, the trustee is the person with the responsibility of holding assets on behalf of one or more parties also known as beneficiaries. A family trust or discretionary trust is a trust that gives the trustee the power to choose the beneficiaries of the trust. A discretionary trust is important for asset protection, minimizing tax, carrying forward losses, and tax discounts. Below is a breakdown of how to set up a family trust.


List Your Assets


The ideal family trust should include all the important assets. A family trust can be funded using various assets such your house, investments, retirement accounts, and cash. I find it important to always include the assets that are likely to be prone to heavy taxes or conflict among beneficiaries.


Choose a Trustee


The trustee is the one charged with administering the trust in accordance with your wishes. A trustee can be one person, several individuals, or a private company. It is my observation that many people tend to use a company as the trustee of their property because of spreading and minimizing the risk of liabilities.


Choose Beneficiaries


List your beneficiaries carefully. Beneficiaries are the people who will receive assets and income from the trust. To avoid unnecessary disputes, it is important that you use a fair process of allocating assets and income to your beneficiaries.


Write the Distribution Rules


Set up a trust distribution criteria to avoid discrepancies when allocating funds or assets from the trust. Include the amounts and the times when income should be paid to beneficiaries and any restrictions.


The Goals of the Trust


It is my opinion that when one decides to draft a trust, they have certain goals in mind. The goal of one’s trust will ensure it is designed in a way that seeks to achieve its purpose. Some trusts are designed to exploit tax benefits while others are meant to protect assets. For example, a family trust might be subject to a 50% tax break on any gains made when the assets are disposed off. A family trust also protects assets from creditors in the event that one of the beneficiaries goes bankrupt.


Choose a Trust Name


I think it is more convenient to use one’s family name as the trust name than choosing another title. Using the family name makes it easier to place assets or income in the trust’s name.


Make a Trust Agreement


After listing your assets, designating a trustee, identifying your beneficiaries, the criteria for distributing the assets and income from the trust, the goals of your trust and your trust name, the next step is to take all this information to a lawyer to enable them draft a trust agreement. The trustee of your trust must accept the terms of the agreement by appending their signature. You should also sign the agreement to show your approval of the trust.


A family trust is one of the best ways of securing your family assets and avoiding unnecessary family conflicts, creditor claims, and other related issues. Consult an attorney on the benefits of a trust and how to go about drafting one.


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