Protecting Family Assets Through a Trust

A trust is simply a legal arrangement in which the owner of assets transfers those assets to another person (the trustee) to hold, manage and distribute for the benefit of another person (the beneficiary) under the terms of a written agreement with the owner (the grantor). The purpose of a trust is typically to protect family assets from loss to taxes, creditors, or negligent management or dissipation. Trustees are held to the highest legal standard of care and have the following duties:

  1. The duty of loyalty requires that the trustee must act solely in the best interest of the beneficiaries of the trust.
  2. The trustee must manage the trust with the care, skill, and caution that a reasonably prudent person would use.
  3. The trustee must treat all beneficiaries fairly and cannot favor one over another.
  4. The trustee must strictly adhere to the instructions in the trust instrument.
  5. Accurate and complete records of all transactions must be maintained, and periodic reports must be provided to beneficiaries.
  6. A legal duty of confidentiality applies to all matters related to trust business.
  7. The trustee must take steps to protect and preserve the trust assets.

A trustee who violates any of these duties can be held personally liable to the beneficiaries for any losses suffered by the trust.

A trust can be established either during the grantors life to avoid probate or the cognitive disability of the grantor (a Living Trust), or at the grantors death for a beneficiary who may be unwilling or unable to manage the assets themselves (a Testamentary Trust). Examples of trusts for a particular purpose include:

Trust Solutions for Every Need

A family with a disabled family member who qualifies for public benefits should consider this type of trust to preserve the disabled individual’s entitlement to the public benefits.

Single or married individuals that are either currently disabled or concerned about future disability (particularly mental disability) can benefit from the peace of mind that a living trust can provide.

Marriages involving a spouse that may be overwhelmed with the complexity of managing family assets upon the death of the spouse that has been managing family affairs. Situations involving children of a previous marriage also suggest the need for a trust that can preserve assets for those children that are not necessary to care for the surviving spouse.

This type of trust can protect a beneficiary from their own reckless behavior or guard against the loss of family assets to a divorce.

An asset protection trust is sometimes appropriate to protect assets from loss to potential judgement creditors in situations that typically arise out of professional or business transactions.

In some cases significant income tax savings can be achieved by leaving assets to a charity during the grantor’s life.

There are a multitude trusts that can accomplish substantial estate tax savings for larger estates. Families that wish to preserve family wealth for multiple generations should consider a Generation Skipping or Dynasty Trust.