For a Family Trust to be effective, a trust grantor or settlor must create a Trust Deed. The Trust Deed is the legal instrument that defines the terms and conditions under which the Family Trust is established. The trust grantor must appoint a trustee--the person responsible for the trust and its assets. The parties of the Family Trust benefit in a number of ways from its creation.
The term Family Trust is interchangeable with the term Discretionary Trust. A Family Trust permits a trust grantor to provide a trustee with the legal authority to distribute income and assets to the beneficiary of the trust. A trust grantor gives all discretion to a family member and is free of the settling guidelines set forth by a support trust.
Protection of Assets
One of the benefits of a Family Trust is that is permits a trust grantor to shelter assets for beneficiaries of the trust who are within the family group. These assets may include automobiles, heirloom property, wedding bands, antique furniture and collectible art. By transferring property through a Family Trust, the family can ensure the family group's assets are sheltered from the liabilities of one or more of the family members.
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A Family Trust is free to distribute income earned by the trust--or from the transfer, selling or mortgaging of property owned by the trust--in any way the trustee desires. However, all distributions must be allotted to members who are within the family group. Distributions made to people who do not qualify as beneficiaries are subject to taxation. There are no restrictions on how often or at what intervals the trust must distribution its holdings.
Even though the beneficiaries of a Family Trust pay tax on the assets paid out to them, they benefit from an annual tax-free threshold. If a beneficiary's income does not exceed the tax-free threshold for a particular year, he does not pay tax on the distributions made to him. However, according to the Trust Maker’s website, if the beneficiary’s income does exceed the annual threshold, the beneficiary will be taxed at his personal tax rate.