Understanding Trusts and What It Can Do For My Family

For families with significant wealth, passing it on isn’t as simple as just writing a will. There’s often more at play - complex family dynamics, a mix of assets, and a strong desire to leave a legacy which will last for multiple generations.

That’s where trusts come in. They've been around for centuries, and for good reason: they offer modern families the flexibility, control and privacy they need to protect what they’ve built, and pass it on with intention.

Let’s uncover what a trust actually is, how it functions, and why it might be one of the most powerful tools you can use in your wealth planning.

What Is a Trust?

A Trust is a legal arrangement where one party (the Settlor) places assets under the control of another party (the Trustee) for the benefit of a third party (the Beneficiary).

·       The Settlor – the original legal owner of the assets. The Settlor transfers legal title in the assets to the Trustee, to be held for the benefit of the Beneficiary.

·       The Trustee – becomes the legal owner of the assets under the Trust and is under a legal duty to hold and manage the assets for the benefit of the Beneficiary.

·       The Beneficiary – enjoys the benefits of the assets being held under the Trust. The Beneficiary becomes the beneficial owner of the assets under the Trust.

Trusts can hold almost any type of assets, including cash, investment portfolios, real estate and stakes in family businesses.

Why Wealthy Families Use Trusts

The core strength of a trust is customization – a trust can be structured to specifically address the unique needs of the family, whether it is simply avoiding probate and keeping family matters private, protecting young children from financial inexperience or perhaps caring for a family member with special needs. A properly structured trust can also potentially help shield assets from lawsuits or adverse taxes.

Here are some of the key reasons families choose to establish trusts:

1. Privacy and Probate Avoidance

The will of a deceased person needs to undergo a process called probate, where the will is validated, assets gathered and inventoried, and debts and taxes paid, before the remaining estate is distributed to beneficiaries.

Probate can take months or even years, and often involves court supervision, fees, and public disclosure of your financial information. Assets are frozen during the probate process and can only be distributed after the process is completed. This can be challenging for your loved ones.

Assets which are held under a trust can be distributed privately and without going through the probate process. This can provide your loved ones with liquidity which may be needed for living expenses, or even to support a family business upon the demise of a key person.

2. Customized Distributions

A will dictates who receives your assets, but distributions are usually immediate, public, and hard to reverse. Trusts, on the other hand, let you customize distributions to meet the specific needs of your beneficiaries.

You can determine when, how, and to whom assets are distributed. For example, you may not want your children to inherit large sums outright at 18 or 21. A trust allows you to set milestones, such as distributions at age 30, 35, or upon reaching certain life goals (like graduating from college or starting a business).

You can even tailor trusts to encourage responsible behaviour, for instance, by providing additional distributions if the beneficiary pursues charitable work, avoids substance abuse, or achieves career milestones.

·       Stagger distributions over time, to ensure that children or grandchildren mature before receiving substantial wealth.

·       Protect vulnerable heirs, such as minors, spendthrifts or loved ones with special needs, by tailoring how and when they receive support.

·       Tie distributions to life events, from education milestones to marriage or launching a business.

3. Continuity Amid Incapacity

A trust isn’t only useful in the event of the demise of the Settlor.

A trust can also be used, during the lifetime of the Settlor, to ensure continued asset management and provide for Settlors themselves in the event of incapacity. Settlors can determine their own level of care in the event of their incapacity, and how their assets should be managed, without the need to burden family members.

4. Asset Protection

A properly structured trust can potentially help protect your family’s assets from creditors, lawsuits and even divorce settlements. For example, if a child inherits money outright, that inheritance could become part of any marital dispute. Holding assets under certain types of trusts can ensure that the assets remain protected and separate.

This is especially important in today’s litigious environment, and trusts are often used as part of a broader asset protection strategy.

5. Consolidation of Family Assets

High net-worth families often own assets across multiple jurisdictions and asset classes which may include business interests, real estate, complex investment portfolios or even art or wine collections.

A trust can consolidate the holding of family assets, reducing the risk of disputes amongst family members and fragmentation of family assets, and ensuring that these assets continue to benefit family members for multiple generations.

6. Tax Planning

For wealthy families, income taxes and estate taxes can be significant. Working with tax advisors to establish a properly structured trust can help minimize or even eliminate certain estate, gift, and income taxes.

7. Legacy and Philanthropy

You may wish your family legacy to include charitable giving. A trust can provide for distributions to be made to specific charities or organisations, or to specific causes. A trust can also be tailored to involve family members in selecting specific charities or causes to receive distributions from the trust in the future, thus passing on charitable values to future generations.

Trusts for an Enduring Legacy

Establishing a family trust is more than a strategic estate planning move. It is a powerful tool that preserves wealth, shields assets from future uncertainties, ensures smooth succession and preserves your family values across generations.

Ultimately, a thoughtfully structured trust ensures that your legacy endures, continuing to support the people you care about well into the future.