Family Trust Planning Guide
A family trust, also known as a discretionary family trust, is a living trust set up by a grantor to gift real estate and other high-value assets to children and future generations of a family group. The trust grantor must appoint a trustee -- usually a family member -- to manage the trust and distribute its property.
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Trust Deed
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To create a family trust, the grantor must fill out a discretionary trust deed. The deed identifies the parties involved in the trust and provides distribution instructions for trust property. Both the trust grantor and the trustee must sign and date the trust deed in front of a witness. A notary public must notarize the deed.
Trust Property
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The trust grantor must obtain a certified appraisal report for each asset with which the trust will be funded. Appraisals must be completed by a certified appraiser and all appraisal reports must be kept in a trust portfolio. The trust grantor must fill out an Agreement for Sale and Purchase form -- a legal instrument that permits the sale of property from one entity to another -- to complete the funding process.
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Considerations
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A trust grantor may limit the distribution of trust property by setting limitations on how and when such property is transferred to beneficiaries, such as minor children. For example, a trust grantor may schedule the distribution of smaller annual payments of the balance held in a "Totten Trust" account -- a type of financial account that permits a trust grantor to hold money for an heir -- until the minor is of legal age.
Distribution of Trust Property
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A trustee must distribute trust property while minimizing taxes for beneficiaries. The Internal Revenue Service publishes the annual tax-free threshold for trust gifts. To prevent a beneficiary from paying a hefty tax bill, the trustee should distribute assets in accordance with the annual tax-free threshold. A beneficiary must pay at her personal marginal tax rate if the value of trust property exceeds the tax-free threshold.
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