What is a Family Trust?
A form of lifetime or “inter vivos” trust that is established for the benefit of a family, or for certain members of that family.
How can it be used?
• To split income between family members to achieve tax savings.
• To transfer a family business to the next generation on a taxdeferred basis.
• To protect assets from creditors.
Who uses it?
• Business owners wanting to split income with their spouse or children.
• Investors with large investment holdings that who like to split income with adult children.
• Business owners planning for succession.
• Somebody providing for a former spouse or children from a previous marriage.
• Any person concerned about possible future financial difficulties.
• Someone providing for elderly parents or other adult relatives who require financial support.
Family Trust Case Study
Cynthia started a manufacturing company several years ago. Since then, the business has flourished and Cynthia managed to accumulate a sizeable investment portfolio. She now enjoys a comfortable lifestyle along with her husband, Robert, and their two children, who are 12 and 14. However, in a turbulent economy, Cynthia wants to know how she would be personally affected if the company ran into financial difficulties, or there was an unexpected liability. She is looking for a way to protect her personal assets.
Cynthia transfers $400,000 of her personal investment assets into a family trust, with her husband and two children named as beneficiaries. Working with her advisor, Cynthia structures the trust so that her children will financially benefit from the trust when they turn 19 and are going on to higher education. For Cynthia, a family trust serves two purposes. It protects her personal assets from possible creditors, which provides financial security for herself and her family. It also is a way to fund her children’s education.