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Family Wealth Transfer – Wills vs Trusts

our taxation and accounting services 1024x734Imagine your dream of a family legacy, then imagine it turn into a nightmare.

Only 25% of families report feeling confident their current trust reflects their wishes, and 80% of trust disputes involve beneficiaries feeling excluded or unfairly treated.
Could your trust unknowingly lead to a future family bust up?

While a will dictates the distribution of your personal assets, trust assets operate under a separate set of rules, leaving many surprised to discover their carefully crafted will holds no power over their family trusts.

So, why are trusts immune to your testamentary desires and why can’t a will compete against a well-structured family trust? Well, this distinction boils down to ownership: assets in your will are yours, while trust assets belong to the trust, a separate legal entity with its own set of rules, an independent entity with its own controller – the trust deed.

Family trusts offer unique advantages that wills simply can't match. Imagine a protective bubble shielding your assets from creditors, minimizing taxes, and ensuring smooth wealth transfer across generations. That's the magic of a well-structured family trust.  If you encounter financial difficulties, these assets are still safeguarded, unlike those listed in your will. Trusts offer significant tax advantages, by strategically distributing income and capital gains, you can minimize the overall tax burden on your beneficiaries.

But the real game-changer lies in generational wealth transfer. Unlike wills, which distribute everything at once, trusts can dole out assets gradually, protecting beneficiaries from squandering their inheritance and ensuring long-term financial security for your family lineage.

Let’s dig deeper into the intricate world of wills & trusts, their strengths, limitations and essential factors to consider before planning your end game and ensuring you make informed decisions about your legacy.

Imagine your estate plan as a grand ballroom, where wills and trusts hold separate but interdependent roles:

Wills: The Diplomat:

Wills shine in their simplicity and affordability. They clearly express your final wishes, outlining who inherits what from your personal assets (excluding those already placed in a trust). Like a seasoned diplomat, they navigate inheritance smoothly, particularly for smaller, straightforward estates. However, their limitations are crucial:

• Probate: Wills go through probate, a public and potentially lengthy court process that can delay asset distribution and incur fees.
• Limited Control: Wills offer minimal control over how assets are managed or used after your passing.
• Ineffectiveness for Trusts: Wills have no power over assets within a trust, leaving your wishes for those assets unfulfilled.

Trusts: The Puppet Master:

Trusts offer sophistication and flexibility at a higher cost. They act as separate legal entities, owning and managing assets according to the instructions laid out in the trust deed. Like a shrewd puppet master, they offer unique advantages:

• Avoids Probate: Assets within a trust typically bypass probate, saving time, money, and privacy.
• Asset Protection: Trusts shield assets from creditors, protecting your beneficiaries' inheritance.
• Tax Advantages: Trusts allow for strategic distribution of income and capital gains, minimizing tax burden.
• Control & Flexibility: You can specify how and when assets are distributed, and even impose conditions on beneficiaries.
• Generational Wealth Transfer: Trusts can distribute assets gradually, protecting them from mismanagement and ensuring long-term family wealth.

However, trusts come with their own limitations:
• Cost & Complexity: Setting up and maintaining a trust requires professional guidance and ongoing fees.
• Potential Conflict: Trust provisions can contradict your will, leading to legal complications.
• Not for Everyone: Complex estates or specific goals might require different strategies.

Before embracing the power of a trust, careful consideration is key:
• Estate Size & Complexity: Assess the value and intricacy of your assets. Trusts might be overkill for smaller, straightforward estates.
• Goals & Aims: Identify your specific goals (asset protection, tax minimization, controlled inheritance). Understand how a trust aligns with these.
• Cost & Complexity: Be prepared for upfront and ongoing costs associated with legal setup, administration, and potential tax implications.
• Professional Guidance: Seek expert advice from estate planning attorneys to ensure the trust aligns with your needs and integrates seamlessly with your overall plan.

Remember, wills and trusts are not always rivals, but rather partners in a well-orchestrated estate plan. Understanding their strengths, limitations, and intricate interplay is crucial to ensuring your legacy dances gracefully for generations to come.

Having a family trust already set up is a great start, but succession planning still plays a crucial role to ensure its continued effectiveness and aligns with your evolving goals. Here are some key things to consider:

Review Your Trust Deed:

• Understanding the terms: Re-familiarize yourself with the trust deed, paying close attention to the roles and responsibilities outlined for trustees, beneficiaries, and successor trustees.
• Assessing current relevance: Evaluate if the existing provisions on distribution, asset management, and beneficiary definitions still align with your wishes and family circumstances.
• Considering amendments: If necessary, work with an estate planning attorney to update the trust deed to reflect your evolving goals and address any potential ambiguities.

Succession Planning for Trust Roles:

• Naming successor trustees: Choose capable individuals who share your values and understand the responsibilities involved. Consider their financial acumen, communication skills, and willingness to act.
• Succession plan for other roles: If roles like appointors or protectors exist, set up a clear succession plan for them as well.
• Communication and training: Communicate your expectations and provide training to successor trustees to ensure smooth transition and efficient management.
Beneficiary Planning:
• Reviewing beneficiary definitions: Assess if the current definitions align with your current view of your family and future generations.
• Considering contingencies: Plan for potential life events like marriage, divorce, or disability affecting beneficiaries.
• Communicating expectations: Discuss your future and expectations with beneficiaries to avoid misunderstandings and manage their expectations.

Professional Guidance:

• Regular review with your accountant or legal representative: Schedule regular reviews with your trusted advisor to assess the trust's effectiveness and adapt it to changing circumstances.

• Tax and financial implications: Consult with your accountant to ensure the trust is optimized for tax efficiency and aligns with your overall financial plan.

Other Considerations:

• Digital assets: Address the ownership and management of digital assets like online accounts and cryptocurrency within the trust framework.
• Business succession: If the trust holds business interests, develop a clear succession plan for the business alongside the trust management.
• Family communication: Open and transparent communication with your family about the trust, its purpose, and future is crucial to avoid family conflict and ensure informed decision-making.

Remember, succession planning for a family trust is an ongoing process. Regularly review your plans, communicate openly with your family and professionals, and don't hesitate to adapt the trust to changing circumstances. This will ensure your legacy continues to serve your intended purpose for generations to come.

Amalgam Advisors can offer the services to set up and manage the issues important to you and your loved ones.
 Contact us today to see how we can help and to discuss your specific needs.
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