Family Trust Planning Guide

By David Carnes

A family trust is an estate planning tool that allows you to appoint a trustee to administer assets on behalf of beneficiaries who are family members: normally, your dependents. Transferring your assets using a family trust offers certain advantages over transferring them through probate. Laws governing family trusts differ somewhat from state to state.


You may revoke or amend a revocable trust at any time during your lifetime. If your trust is irrevocable, however, you normally cannot revoke it without a court order, and may amend it only to the extent specifically provided for in the trust document that creates the trust. If the trust document fails to mention whether or not the trust is revocable, the laws of most states presume it is revocable. A major disadvantage of a revocable trust is, unlike an irrevocable trust, creditors can reach trust assets to satisfy your personal debts. Family trusts are often established as irrevocable trusts to prevent creditors from draining the trust of assets that would otherwise go to beneficiaries who are dependents of the trust grantor.


You may choose among two types of trusts: a living trust and a testamentary trust. A living trust takes effect while you are alive. The assets of a living trust are not subject to probate, allowing your beneficiaries to avoid the expense and delays of this process. When you die, your trustee can distribute trust assets in any manner authorized by the trust document, without waiting for permission from the probate court. A testamentary trust takes effect after you die and its assets are subject to probate. After probate closes, however, your trustee will enjoy the same freedom to distribute trust assets as the trustee of a living trust would.

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Estate Tax

The IRS and many state tax authorities may levy an estate tax on the total value of your estate at the time you die. This tax must be paid out of estate assets before any funds can be made available to your heirs. Most taxpayers don't have to pay the estate tax because it is levied only on the portion of the estate that exceeds a statutory minimum value, typically in the six figures. Assets that you place in an irrevocable trust are not considered part of your estate and, thus, not considered when determining whether or not your estate is liable for estate tax. If the value of your estate exceeds the statutory minimum, placing enough assets into a trust to bring your estate's taxable value below the statutory minimum can maximize the amount available to your heirs. Funding an irrevocable trust, however, can sometimes cause you to become liable for gift tax.

Establishment Process

You can create a living trust by drafting and signing a declaration of trust that appoints a trustee, names beneficiaries and spells out how the trustee is to distribute trust assets. You might also attach an appendix that lists trust assets. When drafting the terms of the trust, you may take advantage of the significant flexibility that trusts offer. You might authorize your trustee to distribute trust assets to your beneficiaries all at once or in monthly installments, or invest trust assets and distribute only profits to your beneficiaries. You can create a testamentary trust by including in your will the same content that would appear in a declaration of trust.

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Living Trust Guidelines


Related articles

What Is an Irrevocable Living Trust?

In the United States, there are various types of trusts you can create, all of which are either revocable or irrevocable. In comparison to revocable trusts, an irrevocable living trust is much more effective for eliminating your estate tax burden, in avoiding delays of asset distributions in probate courts and for Medicaid planning. However, an irrevocable trust only provides these benefits if you relinquish control over your assets.

Taxes & the Advantages of Living Trusts

A living trust is a document that a person creates while he is still alive, which enables him to financially provide for the beneficiaries he names. The creator of the trust, or grantor, takes some of his property and gives it to a third party, known as a trustee. The trustee, a person chosen by the grantor, manages the property and distributes it to the beneficiaries, subject to terms outlined in the document that established the trust known as a trust agreement. A trust, if structured appropriately, can protect assets from creditors and can allow for assets to be transferred quickly without having to go through probate. What effect the trust will have on taxes depends on how the trust is structured.

What Are the Disadvantages of an Irrevocable Trust?

A trust is a legal device that permits a grantor to place assets under the control of a trustee, then who administers the assets for the benefit of beneficiaries named by the grantor. A living trust is a trust created while the grantor is still alive -- as opposed to a testamentary trust, which is created by the terms of the grantor's will. A trust is irrevocable if the grantor cannot unilaterally revoke it.

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