What Is A Family Trust And How Do You Set One Up?

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Family trusts are one of the many ways to transfer generational wealth. They are used to ensure your family members can inherit the things you own quickly and easily after you die. They are highly customizable and depending on how they’re structured, they may carry other benefits too, such as shielding your assets from lawsuits.

What is a family trust?

A family trust is any type of trust that lists one or more of your family members as beneficiaries. It’s a legally binding estate planning tool that outlines who inherits your property and wealth after you die — and under what circumstances.

A family trust involves three primary parties.

• Grantor: The person who sets up the trust and transfers their assets into it.
• Trustee: The person or entity responsible for managing and distributing the trust’s assets according to the grantor’s wishes.
• Beneficiary: The person or people who receive assets from the trust.

Family trusts are a type of living trust, which simply means it takes effect during your lifetime. A family trust can be either revocable or irrevocable.

• Revocable: Can be changed or dissolved at any time during the grantor’s life. Offers flexibility but limited protection from taxes and creditors.
• Irrevocable: Cannot be changed after it’s created. Provides better asset protection and potential tax benefits.

Family trusts can also spare your family from owing estate taxes after you die, but this benefit is limited to those with significant assets. In 2025, a gross estate value of $13.99 million or more is required to trigger federal estate taxes. A handful of states levy their own estate tax at lower limits.

Types of family trusts

A family trust fund is more of an informal term than a legal one. In reality, a family trust can be any type of trust that passes assets from one family member to another.

Here’s an overview of a few different types of trusts and how they work. A financial advisor or an estate planning attorney can help you determine which type of trust aligns best with your specific situation.

How to set up a family trust

A family trust fund is a complex legal document, so you should consult an estate planning attorney to set one up.

Here are the general steps you’ll need to follow to establish a family trust fund.

1. Define your goals: Think through why you’re creating the trust. To avoid probate? Protect assets? Provide for children or special needs family members? Your motivation and goals will determine the type of trust you need.
2. List your assets: Identify everything you want to put into the trust — homes, investments, business interests, vehicles, etc. Gather the deeds, titles and statements you’ll need to transfer ownership.
3. Choose your trustee: This person or entity will manage the trust and distribute assets. It can be a trusted family member, a friend or a professional (like a bank or attorney). Choose someone responsible and objective.
4. Select beneficiaries: Decide who will inherit assets from the trust and under what conditions. You can also include stipulations like age restrictions, educational milestones or spendthrift protections.
5. Hire an estate planning attorney: A lawyer will draft the trust document to ensure it’s legally binding and customized to your goals. This includes defining the rules of the trust and making sure it meets your state’s legal requirements.
6. Fund the trust: You’ll need to retitle assets in the name of the trust. This means updating deeds, account titles and beneficiary designations. Assets not transferred into the trust won’t be covered.
7. Notify beneficiaries: This step is optional, but telling your family about the trust and their roles can prevent surprises, confusion and disputes down the road.

Why have a family trust?

Here are some of the main reasons people establish a family trust.

• Avoid probate: One of the biggest perks of a family trust is that assets may be able to skip the probate process entirely. This means faster access for your beneficiaries, less court involvement and reduced legal costs.
• Maintain privacy: Wills go through probate and become public record. Trusts don’t. That means no one outside your family has access to what you owned or who inherits what.
• Control how assets are distributed: You can set conditions like age limits, education goals or phased payouts. That’s useful if you want to prevent lump-sum inheritances to young or financially irresponsible heirs.
• Protect assets from lawsuits or creditors: Irrevocable trusts, in particular, can shield money and assets from legal judgments and creditors. This is especially valuable for professionals at risk of being sued, like doctors or business owners.
• Manage estate taxes: Trusts can help reduce or delay estate taxes. Tools like bypass and life insurance trusts can shield multi-million-dollar estates that may otherwise face steep tax bills.
• Makes your intentions clear: A clearly defined trust with a neutral trustee can reduce confusion and perhaps minimize the chance of disputes over who gets what. That’s peace of mind for you — and fewer legal headaches for your heirs.
• Plan for incapacity: Certain trusts can keep your financial affairs running smoothly if you become ill or mentally incapacitated. Your trustee steps in and manages things without the need for court intervention.

Not everyone needs a family trust. People with modest to average estates can pass down assets to family members through an effectively executed will, and avoid the extra cost and complexity of establishing a trust.

Considerations for establishing a family trust

If you’re trying to determine if a family trust is right for you, here are some pros and cons to consider:

Pros

• Control: A family trust allows you to specify who gets what and under what conditions.
• Privacy: Trusts provide a level of confidentiality not afforded by wills because trusts tend to avoid probate.
• Asset protection: Irrevocable trusts offer protection from creditors.
• Harder to challenge in court: Because trusts can bypass probate, they tend to be harder to contest than wills.

Cons

• Complexity: Setting up and managing a trust can be complex and generally requires professional assistance.
• Cost: A very simple living trust can cost around $1,500 to $2,000 to create, while a complicated trust document can cost $2,500 to $5,000 or more.

Frequently asked questions (FAQs)

• What is the minimum amount to start a family trust?
  

  There’s no official minimum, but generally, if you have under $100,000 in assets, a trust may not be worth the cost and complexity. At that level, a well-structured will, joint ownership and beneficiary designations might be simpler and just as effective.

• What is the biggest mistake parents make when setting up a trust fund?
  

  Not funding the trust. People go through the work of creating a trust, then fail to transfer assets into it — so the trust ends up empty. Another common mistake is naming the wrong trustee. Make sure to choose someone who’s reliable, financially responsible and unbiased.

• Is a family trust better than a will?
  

  It depends. Trusts offer more privacy, avoid probate and give you more control over when and how your heirs get assets. But they’re more expensive and complicated. Wills are simpler, cheaper and sufficient for many people with smaller estates or fewer restrictions on asset transfers. In some cases, the best move may be having both.

Bottom line

A family trust is used in estate planning to pass along assets to your family after you die. A trust has certain advantages over wills, including bypassing probate. It’s a complex document, so consulting with an estate planning attorney and a financial advisor is a smart move.