Creating a Trust for the Protection of Family Assets

Alessio Frateily

Alessio Frateily

Oct 01, 20235 min read

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Creating a Trust for the Protection of Family Assets

Trusts are legal arrangements in which one party, known as the settlor or disposer, transfers assets to another party, known as the trustee, for the purpose of managing and administering them according to the terms set out in the trust document. One type of trust that is commonly used is a family trust, which involves the settlor entrusting their assets, such as real estate and cash, to a trustee, often a specialized trust company, to be invested, managed, protected, and utilized for the benefit of the family members. The primary goal of a family trust is to ensure the economic security of loved ones, providing for their material and spiritual well-being, including maintaining their current standard of living, providing medical and healthcare assistance, funding education, and supporting their professional and entrepreneurial endeavors.

Family trusts are often established when children are young or even before they are born, with the intention of ensuring that the beneficiaries acquire the necessary financial competence to responsibly manage the trust assets that will be transferred to them upon the trust's expiration. The establishment of a trust may be driven by the need to maintain the unity of the family's wealth and provide protection, as well as to secure assistance in the event of illness, disability, incapacity, or old age, or to create a "pension" that allows for a dignified livelihood without the need for active employment.

One of the key benefits of a family trust is its ability to protect assets and individuals from adversities that may arise in life. By placing assets in a trust, the settlor can safeguard them from potential risks, such as adversities, calamities, wars, uprisings, epidemics, widowhood, separation from a spouse, or premature death of one or both parents, as well as other unforeseen circumstances that may arise. The trust serves as a shield, providing for the financial needs and well-being of the beneficiaries and their immediate family members during difficult times.

In certain cases, a trust may be established for the benefit of a minor, such as in the event of the premature death of a parent (perhaps due to an incurable illness) or, conversely, for the elderly parents if they are still alive. A family trust allows for the preservation of the trust assets, making it the most suitable solution as it ensures the proper and controlled management of the assets exclusively for the benefit of the disabled child and the elderly parents. The advantage is twofold: (i) there is no need to follow complex procedures as the trust bypasses the cumbersome system of guardianship administration, which requires the intervention of the judicial authority, and (ii) the spouses no longer have to worry about the tasks they are no longer capable of performing and can be at ease regarding the future, when the disabled child will have to face life on their own.

The ultimate purpose of a trust is to preserve the integrity of the family's accumulated wealth, which has been achieved through diligence, initiative, and frugality, preventing it from being dissipated by future generations. This segregation mechanism is often used in the context of generational transitions for small and large business owners who entrust all or part of their shareholdings in the family holding company to ensure that all the designated instructions are followed to keep the family businesses active over time.

Now that we have explored the concept and benefits of family trusts, let's delve into some actionable advice to consider when setting up a trust for the protection of family assets:

  • 1. Clearly Define Your Objectives: Before establishing a family trust, it is crucial to identify and define your objectives. Determine what you wish to achieve by creating the trust, whether it is to provide for the financial security of your loved ones, protect assets from potential risks, or ensure a smooth generational transition of family businesses. By clearly defining your objectives, you can tailor the trust structure and provisions to meet your specific needs.
  • 2. Select the Right Trustee: Choosing the right trustee for your family trust is of utmost importance. The trustee should be someone you trust implicitly, as they will be responsible for managing and administering the trust assets in accordance with the terms set out in the trust document. Consider their experience, expertise, and reputation in the field of trust management, as well as their ability to fulfill their fiduciary duties and act in the best interests of the beneficiaries.
  • 3. Continuously Review and Update the Trust: It is essential to regularly review and update the family trust to ensure its continued relevance and effectiveness. As circumstances and family dynamics change over time, it may be necessary to make amendments to the trust provisions, such as adding or removing beneficiaries, modifying distribution schedules, or appointing new trustees. Regularly consulting with legal and financial professionals can help ensure that the trust remains aligned with your intentions and goals.

In conclusion, establishing a family trust can provide significant benefits for the protection and preservation of family assets. By entrusting assets to a trustee, families can secure their financial well-being, safeguard against potential risks, and ensure a smooth transition of wealth across generations. To successfully set up and manage a family trust, it is essential to clearly define objectives, select the right trustee, and regularly review and update the trust to adapt to changing circumstances. By following these actionable advice, families can create a solid foundation for their economic security and the well-being of their loved ones.

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