Setting Up A Family Trust: Three Mistakes That Can Make Your Trust Weak

The matter of asset protection can be both challenging and puzzling, especially if you don't have the correct guidance. Today, we go deep into the subject of the three mistakes that you can make when you establish a trust, and that can eventually jeopardize it.

The whole point of setting up a family trust is to protect a family’s properties, valuables, companies, and investments (in simple words, all the family's wealth) from creditors or persons who intend harm.

Yet we can't overlook the fact that this level of protection is only put in motion if the trust is, indeed, strong, and for this, there are several aspects to consider. Today, we introduce to you the three main mistakes that can make a trust weak and leave the assets unprotected.

How To Set Up A Family Trust: The Essence

The trust protects the assets because it's an agreement that separates legal ownership from the settlor. If an individual renounces the right to use those assets and to benefit from them, then these cannot be taken away or seized. 

The property that once belonged to a person is now destined to benefit others, who are, generally, relatives or loved ones of the original owner. Give or take, this is the essence of a trust, and this is what needs to be respected if you want actual protection. 

How To Set Up A Family Trust And Where

Before we continue with the topic, we would like to point out the importance of choosing the right jurisdiction. In the island of Nevis, for instance, the trust legislation is solid as a rock because it doesn't take foreign rulings into account.

To paint a simple picture, let's just say that to challenge a trust in Nevis, you have to go through a legal process within the jurisdiction. One needs only to imagine the hassle and expenses of doing this from abroad, and we immediately understand how this may discourage unfair allegations or ill-intentioned claims. 

What Makes A Trust Weak

With that said, no jurisdiction on the planet will be safe enough if you don't consider the basics. Before we describe the three mistakes of setting up a family trust, we need to understand what would make it weak and leave it at the mercy of litigants. 

This takes us back to the first paragraphs and the purpose of a trustee agreement: losing control of the assets for the benefit of a third party. If someone can prove that the trust was created for any other reason, it can be dissolved.

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Three Mistakes You Shouldn't Make When You Establish A Trust And That Can Weaken It

Don't Establish A Trust And Appoint Yourself As A Trustee

A trustee has the power to decide over the assets, and if the settlor is the trustee, it means he/she is still in control. As a result, the structure can be seen as a sham trust, and your creditors may take advantage of this.

Don’t Establish A Trust Without Transferring The Assets 

Once you have appointed a trustee and signed all the documents, assets must be transferred. Any property, valuables, stocks, or assets of any kind must actually be under the trust. If you fail to implement this, the trust will be sham, and this can be proven in court.

Don’t Create A Revocable Trust

If you create a revocable trust, you, the settlor, will have some level of power over future decisions. Now, if you are trusting your property to a third party, why would you want to maintain control? Such a decision can be seen as an attempt to deceive tax authorities or any other organizations. 

Don’t Trust If You Don't Trust

If you don't trust, don't establish a trust. The main lesson here is that a trust is a decision in which you relinquish control. Any nuances or grey areas may be perceived as shady and make your trust vulnerable. 

The whole essence of the trust is that you no longer own or control the assets, this is what makes it beneficial, and this is what should be respected at the time of establishment.

Luckily, our experts at Mundo have ample experience in such processes and can guide you through them. You can choose from three different packages that target separate needs, involving more comprehensive support as you scale up.

Disclaimer: this article is written for general information purposes only; therefore, this article shouldn't be considered financial or legal advice. Before setting up a family trust, always consult with certified professionals.

Final Thoughts On The Three Things You Should Never Do When Setting Up A Family Trust

At the end of the day, each structure has a reason to be. A company is designed for holding assets, providing services, or manufacturing products, while setting up a family trust is the ideal option when it comes to protecting everything you have built. 

If its core principles are respected, then the trust will be an ultimate tool for asset protection, especially in a jurisdiction like Nevis.

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