Family Trusts

A Trust is a foundational estate planning document used as an alternative or complement to a Will. The easiest way to understand a Trust is actually by comparing it to a Will.


A Will expresses your wishes regarding how you want your estate to be divided among your heirs and other beneficiaries. The Executor named in your Will is responsible for carrying out your wishes and typically does so in the months following your death.

Within your Will, you can also give a portion of your assets to a third party to administer and manage for certain heirs. For example, if you have a disabled child who needs to be cared for, in your will, you can give assets to a third party who will use them to care for that child until his or her death. This arrangement is known as a Testamentary Trust and only becomes effective when you pass away.

There is also another kind of Trust, one that you set up while you are alive, and that is effective both during your lifetime and after your death. This is called an Inter Vivos or Living Trust and is also created to hold assets for the benefit of your heirs and beneficiaries. A Family Trust is essentially a Living Trust created to provide for your family's well-being.

Parties Involved in a Family Trust

There are three essential parties involved in every Trust:

  1. The Grantor - The party who creates the Trust and funds it with assets;
  2. The Trustee - The party who receives the Trust assets and manages them in accordance with the Grantor’s wishes; and
  3. The Beneficiary - The party or parties designated to benefit from the Trust assets.

In most cases, you will be Grantor, Trustee, and a Beneficiary of your Family Trust, as long as you are alive and able. The Trust agreement will specify who will become the successor Trustee when you pass away. Spouses often act as co-Trustees of their Family Trust. Then when one spouse dies, the other spouse becomes sole Trustee.

A Family Trust is created when you (the Grantor) draft an agreement specifying that you intend to transfer assets into a Trust to be managed by a specified Trustee and for the benefit of predesignated beneficiaries i.e., you, your spouse, children, grandchildren, and other loved ones.

Then, in order for your Family Trust to be effective, you must fund it with as many of your assets as possible. Funding a Trust essentially means changing the title to your asset so that they reflect the Trust as their legal owner.

What is the Purpose of a Family Trust?

A Family Trust can be set up to achieve a variety of estate planning goals, most importantly:

  1. To ensure that your assets are managed according to your wishes and on behalf of your beneficiaries, both after you pass away and when you are alive but incapacitated due to injury or illness; and
  2. To enable your assets to avoid probate and be inherited by your loved ones without court intervention.

Your Family Trust can hold all of your important assets, but allow you to retain control and beneficial use of those assets. Then, when you pass away, everything in the Trust gets distributed to your family without the involvement of a probate court, saving your family the time, expense, and publicity of probate.

Advantages and Disadvantages of a Family Trust

Like most things in life, a Family Trust has advantages and disadvantages that should be considered when deciding if a Family Trust is right for you.

Advantages

  • A Family Trust can keep much needed assets out of probate;
  • A Family Trust allows your beneficiaries to inherit faster;
  • With a Family Trust, you can avoid the need for a conservatorship if you become incapacitated;
  • A Family Trust offers your family greater privacy;
  • A Family Trust will allow you to achieve a wide variety of estate planning goals, from providing for a disabled child to funding your children's educations; and
  • With a Family Trust, you can protect your beneficiaries’ inheritances from being lost to creditors, divorce, and poor money management.

Disadvantages

  • A Family Trust requires more upfront costs than a Will;
  • In order for your Family Trust to be effective, it must be properly funded with your assets;
  • You may still need a Will to appoint guardians for your minor children and account for any assets you fail to put into your Trust before you pass away; and
  • Since a Trust is more complicated than a Will, it will require the assistance of an attorney to ensure that it is drafted and funded properly.

How to Set Up a Family Trust

Setting up a Family Trust may initially seem like a daunting process. But by approaching it step by step, the experience can be much less overwhelming:

  1. Step 1: Consult with a qualified estate planning attorney to determine if a Family Trust is right for you and your family;
  2. Step 2: Decide who you want to act as Trustee of your Family Trust i.e., you, your spouse, a relative, or an unrelated party;
  3. Step 3: Decide which of your family members you want to benefit from the Trust;
  4. Step 4: Decide how your family members will benefit from the Trust; and
  5. Step 5: Draft and sign the Trust agreement with the help of your attorney.

Should You Start a Family Trust?

Everyone's family is different. So, no one can say that you definitely need a Family Trust without first reviewing your family’s circumstances. That said, doing nothing can cost you and your family dearly. So, the advantages of having some type of Trust as part of your overall estate plan should at least be considered.

Remember, estate planning is not something you do for yourself. It's something you do for the people you love. To learn more about Family Trusts, and/or for help with setting one up, contact an experienced estate planning attorney.