What Are the Benefits of Placing Property in Family Trusts?

by Vanessa Padgalskas

A family trust is an estate planning tool with many benefits, including avoiding probate. A family trust, more commonly known as a revocable trust, holds property for the benefit of named beneficiaries. A trust can be more complicated to form than a will, but is more flexible and can be used for more purposes.

Avoiding Probate

One of the main benefits of transferring property into a trust is avoiding probate. When property passes to beneficiaries through a will, all the property must go through probate, which can be a lengthy and time-consuming process. Property in a living trust avoids probate because you do not actually own the property in the trust. Property in the trust must be retitled in the name of the trust; thus, the trust owns the property.

Control Use of Assets

As the grantor who creates the trust, you can place conditions on how beneficiaries can access property in the trust. Rather than giving a sum of money to a beneficiary, you can put a condition in the trust that a sum of money is to be used to fund a beneficiary's college education or health care expenses. The trustee will manage the trust property and carry out the purpose of the trust. A trust can prevent a beneficiary from having absolute control over trust assets and ensure the assets are used as you, the grantor, intended.

Protection From Creditors

A spendthrift clause is a trust provision that prevents a beneficiary from transferring his rights in future payments of trust property to a third party. If a trust includes a spendthrift clause, a beneficiary's creditors cannot touch trust property as long as the property stays in the trust. Once the trustee transfers property out of the trust, such as a monthly stipend, the beneficiary's creditors may touch that transferred property. However, a spendthrift clause in a family trust does not protect you from your own creditors; it only protects beneficiaries.

Flexibility

A trust can be amended or terminated more easily than a will. You can amend a revocable trust at any point during your lifetime. For example, you may want to add a beneficiary or change the property distribution. To amend a will, you must comply with all the formalities of creating a will, which is basically like creating a second will. If the amendment does not comply with all the necessary formalities, it may be invalidated by a court.