Family assets and ways to protect them

A matrimonial home, car, furniture, property, savings, pensions, businesses, and stocks are said to be an asset that is owned or used by both or any one of the spouses and their children. If any of the assets increase in value such as shares, growth in business, property value, etc., then they will also be added to the assets and divided fairly in case of any separation between spouses.

Similarly, if the debt is taken by one partner then it will automatically be applied on the other partner and said to be a family debt.

To protect family assets, people used to take the help of trust. The main reason to build a family trust is to make sure that the ownership of the assets is protected. If you are looking to set up a family trust and you are wondering how to find the correct trustee, then it’s not something to be worried about! Because thousands of people across the world set up family trusts for a number of reasons, such as tax optimization, asset protection or to make it a business structure legally.

How to transfer assets into a family trust?

The function of trust involves three groups:

Settlor

A company or a person to make the trust. Generally, there can be more than one settlor.

Trustees

A company or a person to manage the trust. Professionals like accountants or lawyers that act as individuals who set up trusts independently.

Beneficiaries

Family or trust members, who gain benefits through trust.

You (the settlor) have to transfer the ownership of your assets to the trustee legally, while living and using it continuously until the trust deed permits. For instance, if the house in which you are living is listed in the trust deed along with your assets, then you are not the legal owner of the house but you can live in it and use it until the trust deed suggests.

Advantages of a trust

The main benefit of a trust is to protect the ownership of the assets. The advantages of trust can be taken by the family members beyond your lifetime. The assets are legally transferred to the trustees for the benefit of your family members after your life. The benefits include:

Protecting the assets from false claims and creditors.
To make sure that the inheritance is kept by your children, not the partners after a failure of any business project.
Keeping an extra saving for special aims, such as education and business point of view.
Manage the claim from a former partner after your death.

How does it work?

A legal document that must be written carefully by a lawyer called ‘Trust Deed’ will be required to establish a family trust. The document includes the details of the settlor, trustees, and the list of the beneficiaries along with the rules of the management and the administration of the trust.

Transfer of the assets

To transfer the assets, you must see what properties and things you own along with their values that can be transferred to the family trust. Usually, it includes the family house but other things that can also be included are cash, shares, bank deposits, savings, artworks, businesses, etc.

As soon as the family trust is formed; assets are said to be owned by the trust on its market value. However, trust does not have to pay for your assets at that time. That means, initially it is a paper transaction between you and the trust. You sell your assets to the trust in the form of a family trust, and now the trust owes you the market value debt against your assets.

Although, the debt the trust owns is still your asset. You may want to get rid of the debt for achieving the purpose of owning less in your name. The method to go through this process is ‘gifting’.

Gifting

Many people who build trusts ‘gift’ the debt that trust owes against their assets. The trust gift had a limit of $27,000 that anybody could give as a gift in one year till October 2011 without paying gift duty tax. However, the tax for gift trust has now been removed, also there is no specific limit for the gift to be paid in one year.

This solves the issue which people previously suffered. Previously, it took 22 years for a $600,000 valued house to transfer to a family trust. You can now pay the whole amount of debt in a single transaction.

It is always the best practice to seek legal advice for any trust-related proceedings or legal matters. To make sure that you are not violating any rules and to stay in the right direction as well.