Consider these six reasons you should create a Family Trust – you don’t have to be wealthy.

These are the reasons how to simplify your family’s experience after your death by creating a family trust for assets you want to pass on. Family trusts allow families to make a lasting financial legacy through estate planning. 

Reason 1: Protecting Property for Certain Beneficiaries

One of the most important reasons for a trust is to protect property for particular beneficiaries. Most of us think about estate planning in terms of giving our property to our spouse, children, and other loved ones after we die.

Sometimes, however, our intended beneficiaries are just not able to handle an inheritance due to their age, the size of the estate, or the jurisdiction of the assets.

Minor Children

The usual suspects here are minor children. Children under 18 are not even allowed to own property in many countries. Alternatively, your Executor would appoint a trustee to manage your property until your children reach majority age (usually 18).

Nevertheless, many parents cringe at the thought of their 18-year-old getting a lump-sum inheritance. They might quit school, buy an expensive car, and head to Thailand or the Philippines for the beaches.

Minor children don’t just squander inheritances. Generally, experts agree that no one under 25 should receive an inheritance outright since they are not mature enough to handle large sums of money. Of course, many people over 25 should have less money.

Some are spendthrifts at heart, others in bad marriages – many parents would prefer not to allow their in-laws access, and others are in bankruptcy. Additionally, some are too frail and incapacitated to manage their property. Giving money or property to any of these people is never a good idea.

This is when trusts play an essential role in your estate planning; in other words, trusts allow you to give your personal property to those you love and protect it for them at the same time.

Reason #2: Reducing or Eliminating Estate Taxes

Hong Kong does not have estate duty anymore. However, other countries do. Perhaps these taxes are due because your Domicile dictates (UK) or your assets in the country exceed the allowance (UK – GBP325,000 / US$ – US$5,430,000), or there may be transfer or gains taxes to consider (Australia/Canada.)

Many people must be aware that certain Trusts can eliminate or reduce the taxes due. Taxes can be removed by creating certain types of trusts.

Reason #3: Managing Property upon Incapacity

In today’s society, one of the biggest concerns is not dying – instead, living too long! Our parents are concerned about living in their own homes. We worry about whether they will be able to pay their bills and whether someone will walk off with their money. Often, we cannot help them because their property is in their name.

Without some prior planning, our only option is to apply to the probate court to appoint a guardian for them. Having all their personal and financial affairs paraded before total strangers is a gut-wrenching experience, as they will suffer the humiliation and indignity of being declared incompetent.

That doesn’t have to be the case. Some try to avoid this by putting properties in joint names with a son or daughter. It allows the son or daughter to pay bills but not much help with other financial matters. In addition, it creates more problems when the parent dies, leaving the other children out in the cold.

Power of Attorneys

Enduring powers of attorney are a better solution. You can designate the people you want to assist you with your financial matters with a power of attorney. Even so, everyone over 50 should have a power of attorney, despite its many benefits.

The first issue is that your attorney may find working with some financial institutions difficult. Second, your attorney may have some of the powers to manage your affairs. If, for instance, you regularly made gifts to family members, your attorney was not permitted to continue making those gifts unless the document specifically allowed it.

The best solution is to create trust. Trusts allow your successor trustee to take over in the event of your death or incapacitation.

Your property management is generally uninterrupted, and there is no court supervision. Additionally, trusts enjoy greater acceptance within the legal and financial communities and a wide range of statutory powers regarding their management. Even though a living trust can’t function without your property, a power of attorney allows your attorney to transfer property into your faith if you are incapable of doing so.

Reason #4: Avoiding Probate.

In the event of your death, the property in your trust will not be in probate. It’s because the trust instrument specifies who gets the property. Property owned jointly with rights of survivorship does not go through probate either. The surviving joint owner receives it automatically.

Your successor trustee can distribute the trust property immediately. Your outstanding debts must be paid. Most of your property may avoid probate; however, you will have estate taxes and probate court fees to pay. 

Does that mean everyone should avoid probate? It is not possible in Hong Kong because certain assets through probate will be distributed to you: Bank account, MPF, Group Life Insurance, and Property.

In Hong Kong, anything under insurance, such as personal life and pensions, can be nominated to your beneficiaries and paid out upon the production of your death certificate. Incidentally, it can take up to 6 – 8 weeks.

Reason #5: Avoiding a Will Contest

Wills are more likely to be contested than trusts. Wills become effective upon death, but trusts become effective upon signing and typically last for some time after the owner dies. You must prove either the testator’s incompetence or undue influence for you to contest a will. 

To contest a trust, you must show the settlor was incompetent or under undue influence. It includes signing the trust instrument, transferring property, making investment decisions, and making distributions. Achieving that would be virtually impossible.

It is also free to contest a will. A disgruntled family member can object to the choice in probate, hire a lawyer on a contingency fee basis, and wait for the outcome. A disgruntled family member has nothing to lose.

Many argue that will contest is rarely successful, so why bother with an irrevocable living trust? An estate settlement can be halted in several ways by a will challenge. Will contests usually take two or more years to complete? Thus, defending a will contest requires a lot of attorney time, resulting in a high legal fee.

The number of money beneficiaries receives from the estate will be reduced due to the deduct legal fees, even if the contest is unsuccessful. Finally, many disputes will be settled without going to court. As a result, the value of the estate will is reduced by the final settlement amount. 

Completing the final analysis will take a lot of time and money. 

The best way to avoid them is with irrevocable living trusts.

Reason #6: Privacy

In general, we dislike the idea of probate since it is a public process. Anyone can view the estate file of a deceased person in probate court. The will is present. Relatives and beneficiaries associated, and creditors’ claims and assets can be viewed. Following, phone and email conversations with those who are Estate beneficiaries. In estate files, unscrupulous salespeople often prey on grieving heirs. 

It’s not uncommon for disgruntled heirs, even close friends and neighbours, to poke around in estate files. Moreover, the internet allows them to check the probate documents without visiting the court.

The only thing they need to do is fire up their computer at home. To see this for yourself, look at all the Wills of Rich and Famous people at Wills are available simply because they are considered public documents once admitted to probate. It doesn’t end there, in any case. Probate courts now post all events associated with the settlement of an estate live on the internet.

The creation of a trust can prevent all of that. Beliefs are private; no one can see them unless the settlor or trustee permits them. Privacy is important to some people and not others.

During these circumstances, privacy becomes a significant concern with an irrevocable living trust. It’s no accident that almost all of the Famous People whose wills are on our website have utilised a living trust to keep their affairs private.

Creating a family trust ensures that your assets are managed according to your wishes to benefit your beneficiaries, whether they own physical property or shares in a company.