Taking Family Trusts to the Next Level

Sunday, August 2nd, 2009

Beneficiaries of family trusts (oftentimes referred to as discretionary trusts), typically have no entitlement to assets held in trust, not until the trustee would exercise his or her discretion and distribute capital or income in their favor.  For example, when a father passed away, his wife may inherit the house or other assets that form part of his estate.  Then, the children (if they’re not minors) would usually take control of the trust and business.  However, trusts commonly have beneficiaries who are creditors too - this part is most often overlooked.

The reason that family trusts (especially those that carry business) tend to have creditors as beneficiaries is because the trustee would be taxed on the debts with a 46.5% flat rate unless he or she distributes all profits, earnings, and realized capital gains in a financial year.  This is one of family trusts’ benefits - the ability to stream the various classes of income and give it to most appropriate beneficiaries so that in the end, a lower tax amount is paid generally compared to business structures where the owners have fixed settlement.

Ideally, a succession plan requires a solicitor, accountant, lawyer, and financial adviser working together.  This will encourage a smooth facilitation so that the estate plan is complied with in a timely manner.

Tags: accountant, beneficiaries, capital, creditors, discretionary trusts, estate plan, family trusts, financial advisor, income, lawyer, solicitor, sucession plan, trust, trustee
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Transferring Business Assets to Children

Thursday, July 30th, 2009

There are several methods for business owners to transfer ownership or assets to their children without the high cost of federal gift tax.  Some methods would include providing numerous money transfers until the exclusion limit, setting up family limited partnership, and setting up a family trust that will receive transferred assets.  A business owner like you should know when would be the right timing to step out of your family business.  Here are some tools you can use:

*Buy-sell agreement - this is a legal contract prearranging your business sale interest with a willing buyer.

*Outright sell - you can receive cash and use it to maintain your lifestyle through selling your business interest to any of your family members

*Grantor retained annuity trusts (GRAT) - a sophisticated succession tool in business which uses irrevocable trusts to transfer assets while at the same time retaining a specific income payment for a particular set of time.

*Private annuities - sale of property wherein the buyer makes an unsecured promise that they will make periodic payments to the seller for the rest of his or her life.

*Family limited partnerships - when you transfer ownership of your business to this partnership, control of general partnership interest will still be with you and you can gift this interest to your family members.

Tags: assets, business owners, buy-sell agreement, family limited partnerships, family trusts, famly business, federal gift tax, GRAT, outright sell, private annuities, trust
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Advantages of Revocable Family Trust

Sunday, June 21st, 2009

A trust can only be effective if you own the title to the asset or property.  Remember that when you transfer your assets’ title into trust, it’s called “Funding your Trust.”  And when assets are already moved, then there’s no need for probate because the control of the estate is now transferred to the trustee.

Here are some advantages of using revocable family trust:

• -If ever an accident or illness leaves you incapacitated, then your successor trustee would be able to handle your financial affairs - the court will not need to appoint any conservator or guardian.
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• -If beneficiaries are minor children, the trust continues to hold assets until the children reaches a more mature age.
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• -If you own real estate properties in several states, you can avoid the hassle, time, and expense of multiple probate proceedings.
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• -Husbands and wives can maximize federal estate tax exemptions.
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• -Trusts are more difficult to contest compared to a traditional will. In order to invalidate it, either you prove that it’s signed under duress or the maker was incompetent during the signing day.
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• -It’s almost impossible to contest family trusts. When wills are contested, the assets are usually frozen, however, assets placed in family trusts can still be distributed pending the legal challenge outcome.

Tags: advantages beneficiaries, asset, estate, Family Trust, family trusts, probate, property, trust, trustee, trusts
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