Family Trust

What is a family trust?

A family trust is one of many different types of trusts to help individuals pass on their assets according to their wishes. The person creating the family trust, the settlor, will specifically name family members such as spouses, children, grandchildren, nephews, nieces, or other family members as the beneficiaries of the trust so they can preserve and pass on wealth to future generations.

How does a family trust work?

In a family trust, the settlor will specify which assets will go into the family trust fund and how those assets will be distributed to beneficiaries. The settlor will name a trustee to oversee the proper management and distribution of these trust assets.

Family trusts can be set up as either revocable or irrevocable and thus can be used to execute a wide range of estate planning strategies to achieve an individual’s or a family’s estate planning goals. 

What is the purpose of a family trust?

The purpose of a family trust is to preserve wealth for family members and future generations by creating a structure to manage and pass assets based on the wishes of the family member or members setting up the trust. Like other trusts, a family trust can be used to achieve certain estate planning goals. 

Some family trust benefits include asset protection from creditors, avoiding probate, ensuring privacy, and allowing for a controlled distribution of assets to family members. Additionally, a family trust can be set up with the purpose of catering to the specific needs of certain family members (such as individuals with special needs or minor children) or facilitating business succession to family members.

Who can set up a family trust?

Anyone who is of legal capacity, sound mind, and meets the legal age of majority in their state can create estate planning documents and set up a family trust. This can be an individual or a couple that wishes to set up a joint trust. 

How can you set up a family trust?

When setting up a family trust, it’s helpful to meet with an estate planning attorney or use an estate planning software to outline the terms of the trust and create the trust documents. 

The major steps in setting up a family trust include:

1. Choose the beneficiaries and determine how they will receive trust assets

Once you’ve decided which family members you want to name as beneficiaries of a family trust, you can specify the exact terms and conditions under which they will receive the trust assets. For example, you can state that your grandchildren will only receive their share upon graduating high school or college unless they have a health emergency.

2. Name a trustee/trustees

Who will manage and distribute the trust assets to beneficiaries? The trustee of the trust does not have to be a family member. It can be a professional trustee or a third party. In a revocable family trust, the person setting up the trust can also be a trustee while they’re alive, naming successor trustees to administer the trust after their death.

3. Create the family trust fund

A trust fund simply refers to the collection of the assets held within a trust. A family trust can include cash, investments, real estate, personal property, and business interests. Once the trust is funded, the trustee is responsible for managing the assets within the trust as outlined in the trust terms by the settlor.

Who owns the assets in a family trust?

Once a family trust is established and funded, the assets within it are owned by the trust itself. The trustee holds legal title to the assets for purposes of managing and administering the trust for the benefit of the trust’s beneficiaries. While the beneficiaries have a beneficial interest in the assets, they do not have legal ownership or direct control over the assets until the assets are distributed to them.