3 Problems With Family Trusts
A trust can be a great way to manage property and financial assets, both during life and after. But there's something about adding family to the mix that runs the risk of taking a great thing and making it not-so-great. While we love family, internal rivalries, grudges, and simple failures to communicate can turn a family trust into a family nightmare.
Here are three ways a family trust can go wrong, and how to avoid them:
1. The Family Part
Like we said, there's just something about family. And having a family trust means that you'll be owning property with family, making any decision a family decision. Remember how hard it was to get everyone to agree on a restaurant? Think about that, only with real property and financial assets at stake. When constructing a family trust, make sure you know -- and have faith in -- who is making the final decisions.
2. The Trust Part
Trusts are legal entities, but they are created and administered by people, meaning they may not be perfect. And while trusts can be amended, that process isn't easy and must be done properly to ensure amendments are legally binding. Any changes must be explicit to have legal force, and the form of those changes may depend on the type of family trust involved.
3. The Trustee Part
Family trusts, by definition, have trustees -- people in charge of managing the trust for its beneficiaries. Choosing a trustee may be difficult enough with family involved, but what happens if you want to remove a trustee? A trustee can be removed for a variety of reasons: failure to comply with the terms of the trust, neglecting or mismanaging trust assets, or other breach of fiduciary duty. Removing and replacing a trustee can be a complicated process -- all the more reason to get it right in the first place.
Family trusts can be complex legal structures, and adding family interests to the mix may only complicate matters. Make sure you've sought the advice of an experienced trusts attorney before setting up a family trust.
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