What is A Family Wealth Trust and How Does it Help Preserve Wealth

Wealth isn’t something that can be conjured up overnight; it takes generations to build and takes a lot of work to preserve and protect.

There are a few ways to go about doing this, and you’ll find that the most prominent families are among the best at maintaining wealth across the decades and even over the centuries.

This is where a family wealth trust can be an important, impactful asset to have. So what is it, and how does it benefit those that use it?

The basics

As the name suggests, a family wealth trust is essentially a central, unified entity which represents the various valuable assets of a particular family, and from which beneficiaries can manage and withdraw money as required.

Usually a trust is set up by an individual, referred to as a grantor, who is the person responsible for providing the assets on which it is founded.

A trust can include cash, investments and business interests, but also frequently covers real estate as well. The grantor can name trustees to take care of how the assets are managed, with the main aim being to bolster its value through sensible decision-making, working towards creating sustainable wealth for the beneficiaries going forward.

The advantages

The preservation of wealth is achieved by family-focused trusts in a few ways, the first of which is by avoiding the potential for mismanagement of assets which might otherwise be inherited by individual heirs.

In the case that a rich individual wants their descendants to inherit their estate, but doesn’t want it to be frittered away by relatives who are less able to hold onto wealth, a trust is a no-brainer.

Indeed grantors can even implement specific rules within a trust that provide instructions with regards to when and how the assets it is responsible for are used. For example, it may be stipulated that beneficiaries can only access it once they reach a certain age, or when they hit some other life milestone.

The next way in which a trust preserves wealth is by limiting the amount of inheritance tax that has to be paid upon the passing of a wealthy individual. If an entire estate was valued and divided between the beneficiaries of a will at the point of death, then the government would take a hefty slice.

That is not to say that family wealth trusts are tax-exempt, but rather that it is often more efficient to have tax paid annually on a growing pot of assets, rather than snatched in one fell swoop.

The other uses

While family wealth trusts may sound like they are primarily about building and maintaining the wealth within a certain tight-knit group of related individuals over generations, they don’t purely have to be put together with the self-interest of the grantor in mind.

Plenty of people set up trusts which are partly or wholly charitable in nature, meaning that they disperse the assets not just to family members, but also to good causes that meet the requirements laid out at the point of the trust’s creation.

Likewise a trust can apply to just one asset, say for example a vacation property which is shared by several members of the same family. So it doesn’t just have to be the mega-rich that need to consider what benefits trusts can bring to the table.

Final thoughts

While not everyone will have the means to set up a family wealth trust, if you are in the position where you have a lot of valuable assets to your name and you want to use them to provide for your relatives for many years to come, it could be the best option to consider.