Learn everything about family trusts, including their purpose, types, setup process, and benefits for estate planning. Discover how trusts protect assets, avoid probate, and support family members effectively. This guide offers essential insights for families seeking to secure their assets and plan for the future.

What Are Family Trusts?

A family trust is a legal arrangement where a trustee manages assets on behalf of family members, offering financial benefits and protection. It is specially designed to benefit relatives and streamline estate planning.

Setting up a family trust allows you to transfer ownership of assets, removing them from your personal estate while still enjoying their advantages. You can create a trust during your lifetime or include it in your after-death estate plan.

While often associated with living trusts, family trusts—sometimes called "trust funds"—are powerful tools for estate management. They help middle-class families and wealthy individuals avoid probate and support relatives who require assistance with financial decisions.

Creating a family trust is often preferable to a will, protecting your assets from creditors, ex-spouses, or legal claims. Transferring assets into the trust ensures they are managed on your behalf, providing protection while you retain the right to benefit from them. Understanding these benefits clarifies why establishing a trust is advantageous for asset safeguarding.

How Family Trusts Operate
The creator of the trust is known as the grantor. The individual responsible for managing the trust is the trustee, usually appointed by the grantor. Often, the grantor acts as the primary trustee, with a backup trustee assigned for times when they cannot act. Family members are typically named as beneficiaries.

An important aspect of family trusts is their ability to designate relatives as beneficiaries, including extended family. Some states also include charitable trusts within this structure.

Types of Family Trusts
Family trusts can be either revocable or irrevocable. A revocable living trust can be modified or canceled during the grantor's lifetime, offering flexibility. Once established, an irrevocable trust cannot be changed but provides different legal protections. Most prefer revocable trusts for control until death, at which point they become irrevocable.

Included Assets
The trust document specifies which assets are included, covering physical items and untitled assets. Real estate and investment accounts with titles are officially transferred into the trust, changing ownership rights.

Common Objectives of Family Trusts
A family trust serves several functions, such as minimizing estate taxes via credit-shelter trusts, or enabling the skipping of generations with generation-skipping trusts. Examples include:

Credit-Shelter Trust: Preserves assets from estate taxes and maximizes exemptions, allowing remaining wealth to pass tax-free to spouses.

Generation-Skipping Trust: Transfers wealth to grandchildren or beyond, useful for funding education or specific distribution plans.