Family Trust Vs Living Trust

flik eco finance personal family trust vs living trust

Making the decision between a family trust and living trust can be difficult. Both have their own advantages and disadvantages, and it can be hard to decide which is the best option for you.

In this personal finance guide, we will take a look at both options and compare them side by side. We will also discuss the pros and cons of each so that you can make an informed decision about which type of trust is right for you!

What is a Family Trust?

A Family Trust is a type of trust that is created for the benefit of a family. The trustee holds and manages the trust property for the benefit of the beneficiaries, which can include children, grandchildren, and other relatives.

A Family Trust can be used to protect assets from creditors, to provide for loved ones who are unable to care for themselves, and to minimize estate taxes.

What is a Living Trust?

A living trust is a legal entity created by an individual, typically with the help of an attorney, for the purpose of holding and managing property. The individual who creates the trust is called the grantor, settlor, or trustmaker.

The person chosen to manage the trust assets and distribute them according to the terms of the trust is called the trustee.

What is The Difference Between a Family Trust and a Living Trust?

The main difference between a family trust and a living trust is that a family trust can be used to protect assets from creditors, while a living trust cannot

A family trust is also more flexible than a living trust, as it can be amended or revoked more easily. Finally, a family trust is not subject to probate, whereas a living trust is.

What Are The Different Types of Family Trust?

There are three main types of family trust:

Revocable Trust

A revocable trust is one that can be modified or revoked by the grantor at any time.

Irrevocable Trust

An irrevocable trust, on the other hand, is one that cannot be modified or revoked once it has been created.

Testamentary Trust

The third type of family trust is testamentary trust, which is created through a will and only goes into effect upon the death of the grantor.

What Are The Different Types of Living Trust?

The two most common types of living trusts are revocable and irrevocable.

Revocable Trust

As the name suggests, a revocable trust can be revoked or changed by the grantor at any time. This type of trust is often used to hold assets during the grantor’s lifetime, and can be a good way to manage property and avoid probate.

Irrevocable Trust

An irrevocable trust, on the other hand, cannot be changed or revoked once it has been created. This type of trust is often used for estate planning purposes, as it can provide asset protection and tax advantages.

What Are The Advantages of a Family Trust?

A family trust can be a great way to manage your finances and protect your assets. A family trust can give you peace of mind knowing that your loved ones are taken care of financially if something happens to you.

Some of the advantages of a family trust include:

  • You can control how your assets are distributed after you die.
  • Your assets can be protected from creditors and lawsuits.
  • Your heirs can avoid probate.
  • You can minimize estate taxes.

What Are The Advantages of a Living Trust?

There are many advantages of having a living trust, including avoiding probate. Probate is the legal process of distributing a person's assets after they die. If you have a living trust, your assets can be distributed without going through probate, which can save time and money. Trusts can also help you to protect your assets from creditors and lawsuits.

Another advantage of having a living trust is that it can help you to manage your assets if you become incapacitated. If you become unable to make decisions about your finances, the trustee can step in and make those decisions for you. This can be a great relief for your loved ones, as they won't have to worry about managing your finances if you're unable to do so yourself.

Trusts can also be used for tax planning purposes. If you have a large estate, a trust can help you to minimize the amount of taxes that your heirs will have to pay. Trusts can also be used to protect your assets from nursing home costs.

What Are The Disadvantages of Family Trust?

The main disadvantage of a family trust is that it can be very expensive to set up and maintain. You will need to pay for a lawyer to draw up the trust deed, and then you will need to pay an annual fee to the trustee. The trustee is responsible for managing the trust and making sure that the assets are distributed according to the trust deed.

Another disadvantage of a family trust is that it can be very difficult to change the terms of the trust. If you want to change how the assets are distributed, or if you want to add or remove beneficiaries, you will need to get the consent of all the beneficiaries. This can be a difficult and time-consuming process.

Finally, a family trust can have a negative impact on your ability to get financial aid for college. This is because the assets in the trust are considered to be part of your estate, and they will be taken into account when the financial aid office calculates your expected family contribution.

What Are The Disadvantages of Living Trust?

There are some potential disadvantages of living trusts that you should be aware of before making your decision.

One downside is that they can be more expensive to set up than family trusts. You may need to hire a lawyer to help you draft the trust document and fund the trust, which can add to the cost.

Additionally, living trusts are revocable, which means that the trustee can change the terms of the trust or dissolve it entirely if they wish. This can create uncertainty and make it more difficult to plan for the future.

Finally, living trusts are not as well-known or understood as family trusts, which can make them more difficult to administer.

So, Which One Should You Use?

There's no easy answer to this question. Ultimately, it depends on your unique financial situation and what you hope to achieve by setting up either a family trust or living trust.

If you're looking for more control over how your assets are distributed after you die, then a living trust might be the better option. On the other hand, if you're primarily concerned with minimizing estate taxes, then a family trust could be the way to go.

Of course, there are also many other factors to consider, such as the cost of setting up and maintaining a trust, the complexity of the trusts themselves, and so on. Ultimately, it's important to sit down with a financial advisor to figure out which option is best for you.

What Are Some Alternatives to Using a Family Trust or a Living Trust?

If you're not set on using a family trust or living trust, there are some other options to consider.

One is using a will in conjunction with a financial power of attorney. This can be a good option if you want to keep things simple and don't have a lot of assets.

Another alternative is setting up an irrevocable trust. This is a more complex option and is best for people who have a lot of assets or are worried about estate taxes.

Finally, you could always just use a regular old bank account. This might not be the best option if you have a lot of money, but it's an option nonetheless.

What Are Some Tips For Using a Family Trust?

There are many things to consider when using a family trust, such as the purpose of the trust, how it will be funded, and who the beneficiaries will be. Here are some tips to help you get started:

  • Define the Purpose of the Trust. The first step is to determine why you are creating the trust. What are your goals and objectives?
  • Choose the Right Trustee. The trustee is the person who will manage the trust and oversee its operations. It is important to choose someone you trust and who has the time and ability to handle this responsibility.
  • Fund the Trust. The trust must be funded in order to be effective. This can be done through life insurance, investments, or other assets.
  • Choose the Beneficiaries. The beneficiaries of the trust are the people who will receive the assets after your death. You should carefully consider who you want to include as a beneficiary.

A family trust can be a great way to provide for your loved ones after you're gone. By following these tips, you can ensure that your trust is set up and managed in the most effective way possible.

What Are Some Tips For Using a Living Trust?

There are a few key things to keep in mind when using a living trust:

  • Make sure that the trust is properly funded. This means transferring all of your assets into the trust.
  • You also need to name a successor trustee, who will manage the trust after your death.
  • You need to keep the trust up to date. This means adding any new assets and making sure that the beneficiaries are still accurate.

If you follow these tips, using a living trust can be a great way to protect your assets and ensure that they go to the people you want them to.


About Jermaine Hagan (The Plantsman)

Jermaine Hagan, also known as The Plantsman is the Founder of Flik Eco. Jermaine is the perfect hybrid of personal finance expert and nemophilist. On a mission to make personal finance simple and accessible, Jermaine uses his inside knowledge to help the average Joe, Kwame or Sarah to improve their lives. Before founding Flik Eco, Jermaine managed teams across several large financial companies, including Equifax, Admiral Plc, New Wave Capital & HSBC. He has been featured in several large publications including BBC, The Guardian & The Times.

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