Proper wealth management is not just a concern for individuals; it benefits families for generations. With financial advice from a qualified accountant, you’re able to protect the privacy of your assets, provide for your children, and ensure that family members with special needs are cared for by creating a family trust. A trust is a legal entity that lets you control distribution of your financial assets during your life and assure continuity afterward. The first step in setting up a family trust is making an appointment with your Certified Public Accountant. Services also include defining a trustee and beneficiaries for the trust.
Here are some other important facts to know so you can decide if a family trust is right for you.
Why a Trust?
There are many reasons you might choose to set up a trust, but the common denominator in most of them is control. A trust provides continuity of care for minor children or relatives with special needs, ensures responsible spending in adult children, and lets you maintain the privacy of your assets instead of making them a matter of public record. With a trust, there is often no need to go through probate court, which can be time-consuming and expensive.
Although they are often part of sound financial planning for families with significant wealth, trusts can also make sense for other families too. If a family member with special needs has access to government benefits or services, setting up a trust can help maintain those benefits after you are gone. A New York accountant with a thorough understanding of state law as well as federal law can also maintain continuity of care for state services.
Other reasons to set up a trust can include protection of assets from former spouses or creditors, facilitation of charitable donations, inheritance tax management, and easier administration of financial affairs for yourself and your heirs.
Types of Trusts
Trusts typically fall into one of two categories: irrevocable trusts and revocable, or living trusts. An irrevocable trust places some of your wealth outside your estate, sheltering it from inheritance taxes, and cannot readily be amended. As its name suggests, a revocable trust is one that allows the creator of the trust to change the provisions in it. When the creator of the trust is disabled or deceased, this kind of trust reverts to an irrevocable trust.
One specific form of trust merits discussion for families with significant wealth. A generational trust allows you to provide assets to grandchildren directly, and it may be either a living trust or an irrevocable one. This trust lets families avoid double taxation – once when children inherit and again when the wealth passes to the third generation – and can be the cornerstone for building lasting familial wealth.
Do You Need a Family Trust?
Although a trust confers significant benefits, it’s best to talk with a CPA who’s knowledgeable about estate finance and personal wealth management before deciding whether a trust is right for you. Creating a trust does come with associated costs that include attorney’s fees and retitling charges, and although these fees are typically low compared to the value of the trust, they do factor into the decision for some families. Irrevocable trusts are challenging to change once they are put in place, so working with an accountant who understands the process is vital.
Your accountant can guide you through the process of deciding which type of trust might be best for your family and how a trust can fit into your overall wealth management strategy.
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