When it comes to protecting your assets and keeping your generations’ future secure, family trust is important. But one needs to know that family trust has its terms and conditions that can enlighten you about the subject and throw away your misconceptions in the trash can.
Since you are here, you must be looking for a way to protect the family farm through Family Trust. Before talking about that, let us have an overview of what trust is and how it can be used.
Definition of Trust
If you have any idea about family trust then you must know that they are a way to protect the wealth of your family and are proven to be valuable in terms of supporting small businesses. You would be glad to know that trusts have been around longer than you would have imagined.
They’ve been around since Crusades when the Highborns and Knights wanted a way to keep their assets (mainly castles) away from taxmen and relatives during the time of war.
So if one has to put Family Trust in simple words then it is a system of holding the property so that it can benefit someone you choose. The system is managed by the trustee of the trust. Another thing to know is that a trustee can be a company or an individual.
How to Protect Family Farm?
Now let’s come to the catch. You must be wondering how you can protect your family farm. Well, there’s one way to do that. Yes, it is through a family trust. There’s a family trust known as the discretionary trust.
This trust is an amazing way of protecting the family farm as well as dividing the income from the farm to reduce taxation. Now, it is a trust which takes over the asset of your family, in your case the family farm. It is the trustee’s job to manage all the assets and take care of the trust.
If you have chosen beneficiaries of the trust then the income earned by the trust each year gets divided among them.
The best part about family trust is that the tax rates get applied differently to different people depending on their age and occupation. So, if there’s a family member of a lower tax bracket, the tax reduces accordingly. This eases the burden from the farmers who don’t have to pay high taxes.
Utilizing the Family Trust for Protecting Assets
Saving the family farm is easy when you opt for a family trust as it can pull you out of your hard times and save you from the burden of debt and bankruptcy. The income of the farm goes directly to the account of the trust and later gets distributed to all the beneficiaries. But the assets remain being owned by the trust itself.
It’s not the individuals though who own the trust. But it helps them in running their business smoothly in case of any kind of financial crisis as their business assets get protected by all the trustees.
And to be clear, the assets of the trust cannot be sold to fulfill any individual’s purpose.
So, the family farm remains safe and one can unload the burden of huge taxes or bankruptcy. Also, one can set the vesting date of the trust when the income can be used by someone. Usually, they are used when one of the beneficiaries or trustees gets bankrupt.
But once a trustee under bankruptcy gets vested, he/she doesn’t get funds or distributions under the will of the trustee. But the beneficiaries still get the funds from the assets and get distributed as a part of the system.
Why Go Careful with the Family Trust?
Even though we have established that a family trust can protect your farm as well as your family assets, you must know that there can be loopholes and things that you have to consider and walk carefully along the way to access the family trust. But don’t worry as there are minor things you can keep in mind while dealing with the family trust and safeguarding your assets, and belongings with it.
1. Trust Situation in case of legal dissolution of marriage
Now when it comes to the family trust, one has to keep this possibility in mind because it is important to know what happens to it after marriage is legally dissolved or in simple words, in case of a divorce.
Now when two people decide to get divorced, the huge discretionary power goes in the hand of the court that gets to make the decision. It’s the court who decides what happens to the family farm or other assets, also including the trust.
Now the court may or may not relinquish the benefits of somebody under the trust and not just relinquish but also amend the terms of the trust to support the family situation once the separation is done.
2. Family Provisions Act claims
In the case of the family provision claim, the family trust tends to become a notional estate. This means that when a family trust leaves behind an eligible person without providing any sufficient provisions in the will, the estate’s executors may have to face legal proceedings that can go on for long.
3. Misconduct Allegations on a Trustee
When there’s an allegation of misconduct on a Trustee, whether they misuse the trust fund or disturb the date of vesting of the trust, they are liable to face court trials and may get slammed with charges.
Being a farm owner, you must know that the court, as well as the taxmen, are more than eager to get a hold of your assets that are being held by the trust. This is why it is important to take the right measures and be careful about all the regulations. If you want to set up a family trust as part of farm estate planning, you can always take the help of an accountant and a lawyer. This can help you in times when you most need it.