It’s Never Too Early To Set Up a Family Trust

Why everyone (not just your parents) should have a Family Trust set up by 60.

There are several types of “Trusts” so I recommend hiring an elder care lawyer to help you select the best type for your needs. For the purpose of this article, I am just going to refer to it as a “Family Trust”.

Why set up a Family Trust

There are many reasons why you should set up a Family Trust with your elderly parent but the main reason is to protect your parent’s assets from being drained by an elder care facility. These facilities are legally obligated to use every last drop of money and assets your parents have before Medicaid kicks in to pay for your parent’s care. In addition, they will do a “5-year look-back” to see what assets and money your parent had so if you moved money or sold assets within 5 years of your parent being placed in a facility, your parent won’t qualify for Medicaid. Basically, the look-back period prevents people from transferring assets to family members or others to artificially reduce their net worth and qualify for Medicaid benefits.

To summarize, here are the main reasons to set up a Family Trust:

  1. Asset Protection:
    • Protect family assets from creditors or legal claims.
    • Safeguard assets from disputes, divorce, or bankruptcy involving family members.
  2. Wealth Preservation:
    • Ensure that family wealth is managed responsibly and passed down to future generations.
    • Prevent mismanagement by heirs or beneficiaries who might not have financial expertise.
  3. Tax Efficiency:
    • Legally minimize taxes on income, capital gains, or estate taxes by spreading income among beneficiaries who might be in lower tax brackets.
    • Protect assets from inheritance or estate taxes in some jurisdictions.
  4. Control Over Distribution:
    • Set specific conditions for how and when beneficiaries can access the trust’s assets (e.g., reaching a certain age or achieving milestones like education).
  5. Estate Planning:
    • Ensure a smooth transfer of assets to beneficiaries after your death.
    • Avoid lengthy probate processes and maintain privacy over the estate’s contents.
  6. Special Needs Planning:
    • Provide for family members with disabilities or special needs without affecting their eligibility for government benefits.
  7. Business Succession:
    • Protect and manage a family business, ensuring continuity while addressing the needs of multiple stakeholders.
  8. Conflict Prevention:
    • Reduce family disputes over inheritance by clearly outlining asset distribution.

When to set up a Family Trust

Traditionally, most people don’t even think about setting up a trust until after they’ve retired or beyond – if they think about it at all. Ideally, everyone should set up a trust well before they retire. In fact, there’s no reason not to set one up as early as possible because it has no impact on how you can use your money or own your assets. All it does is protect it. You can put your home and other properties in your trust, and you’ll still be the owner. You can create a bank account for all your money, and it’s still all your money. So why not set one up today?

Here’s a summary of key reasons that may drive you to set up a trust today:

  1. Building Significant Wealth:
    • If you’ve accumulated substantial assets (real estate, investments, or a business) and want to protect or manage them effectively.
    • This often happens in your 30s, 40s, or 50s, as your wealth and responsibilities grow.
  2. Starting a Family:
    • When you have dependents, a trust can ensure their financial future is secure.
    • Consider this as early as your 20s or 30s if you’re planning for children or other beneficiaries.
  3. Purchasing Property:
    • If you’re buying property or other significant assets, a trust can hold these assets for protection and tax benefits.
  4. Starting a Business:
    • Entrepreneurs can benefit from holding business assets in a trust to protect them from legal claims or to ensure smooth succession planning.
  5. Approaching Retirement or Estate Planning:
    • In your 50s or 60s, as you plan for retirement and the transfer of wealth, a trust becomes a vital part of estate planning.
  6. Anticipating Life Events:
    • Divorce, remarriage, or concerns about potential legal claims.
    • Supporting a special needs family member who requires long-term care.
  7. After Inheritance or Windfall:
    • If you receive a significant inheritance or windfall, placing it in a trust can preserve it and minimize tax liabilities.

Best practices:

  1. Earlier Is Better:
    • Setting up a trust early ensures assets are protected and financial plans are in place for unexpected events.
  2. Update Regularly:
    • Review and adjust the trust periodically to reflect changes in family, financial, or legal circumstances.
  3. Consult a Professional:
    • Work with a lawyer or financial planner experienced in trusts to ensure it aligns with your goals and complies with local laws.