Family Trusts & Gifts

Family Gift Trusts

• These trusts allow grantors to give an annual cash contribution of up to $11,000 tax-free to family members. Over a beneficiary's lifetime, the trust can distribute up to $1 million in such annual tax-free gifts. This trust offers a way to slowly turn an estate's assets over to inheritors without paying estate or gift taxes. Spouses, as well as children, are eligible to be trust recipients. Despite its name, there's no requirement that beneficiaries be relatives of the grantor.
  
  

Living Trusts

• Grantors must establish this trust, also known as a family trust, while they're alive. Living trusts detail how assets should be managed while a grantor lives and how the estate should be distributed upon the grantor's death. Revocable living trusts let the grantor modify asset-management preferences at any time, while irrevocable living trusts are unalterable. Because they direct trustees in estate management, living trusts guarantee continuity in an estate plan should a grantor become incapacitated and unable to make decisions.
  
  

Avoiding Probate

• Aside from reducing estate and gift taxes, trusts also eliminate the need for probate, during which a court determines how a grantor's assets will be divided. Wills alone don't prevent probate; they merely help probate courts allocate property according to the deceased party's wishes. With a family trust, probate court isn't necessary. The trust, rather than a person, owns the assets. The trust's documents outline who receives assets, and on what terms. This keeps distribution of assets out of the public eye.
  
  

Other Benefits of Trusts

• Trusts protect family assets from creditors, even during bankruptcy. If a beneficiary gets divorced, trust assets are not considered marital property and are thus kept out of any court-ordered division of marriage assets. If a beneficiary is incapacitated, the trust can continue to manage the inherited assets without requiring additional, costly guardianship proceedings. Grantors can use the lower tax brackets of their trusts to reduce their income tax burden. And trusts allow trustees to implement a professional investment plan to grow the assets.