How To Set Up A Family Trust: 12 Steps To Setting Up A Family Trust

How To Set Up A Family Trust - Setting Up A Family Trust - Creating A Family Trust - Set Up A Family Trust

Let’s talk about how to set up a family trust. 

In this article, you’ll learn about: 

  • how to set up a family trust
  • what a family trust is and how a family trust works
  • the types of family trusts you can choose from
  • family trust pros and cons
  • who owns the assets in a family trust
  • how much does setting up a family trust cost

Let’s dig in.

Table of Contents

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How To Set Up A Family Trust

Here is how to set up a family trust:

  1. Identify the Purpose of Your Trust: Define what you want to achieve by creating a family trust, such as asset protection, care for family members, estate tax reduction, or privacy.
  2. Decide on the Type of Trust: Most families opt for a revocable living trust that can be modified or revoked as needed.
  3. Choose the Trustee: Select who will manage the trust, be it yourself, a family member, or a professional trustee.
  4. Identify the Beneficiaries: Determine who will receive the benefits from the trust.
  5. Detail the Terms of the Trust: Specify how you want the assets of the trust to be managed and distributed to beneficiaries.
  6. Inventory Your Assets: List all assets you intend to include in the trust, such as property, investments, and cash.
  7. Create the Trust Document: Draft the legal document that describes all the trust’s details with the help of a trust lawyer.
  8. Sign the Trust Document: Execute the document in the presence of a notary public.
  9. Transfer Assets into the Trust: Complete the “funding” of the trust by transferring ownership of your assets into the trust. The process will vary based on asset type.
  10. Manage the Trust: If you are the trustee, carry out the trust management as per its terms, possibly involving asset investment, tax payment, and asset distribution to beneficiaries.
  11. Review the Trust Regularly: Regularly check the trust to ensure it still meets your needs and adjust as needed.
  12. Upon Your Passing: The assets in the trust will be distributed to the beneficiaries as per your stipulations, avoiding probate.

Read More: What Happens To A House In A Trust After Death?

What Is A Family Trust?

A family trust is a legal arrangement where one person, the trustee, holds and manages assets for the benefit of others, the beneficiaries. 

Most of the time, setting up a family trust:

  • protects family assets
  • provides for the needs of family members
  • reduces taxes 

The person who creates the trust, called the settlor or grantor, decides:

  • what assets to put in the trust
  • who the beneficiaries are
  • how the assets are managed and distributed 

Family trusts are commonly used in estate planning to pass on wealth to future generations. 

The terms of the trust are outlined in a trust document. 

There are different types of family trusts, but the most common is a revocable living trust.

These types of trusts can be changed or canceled during the settlor’s lifetime.

Read More: What Happens To An Irrevocable Trust When The Grantor Dies?

How Does A Family Trust Work?

A family trust is a legal arrangement that manages your assets. 

It’s like a container to put your money, property, and investments. 

You appoint a person called a trustee to handle these assets. 

They manage the assets according to your instructions outlined in the trust.

You might set up a family trust to:

  • protect your assets from creditors
  • minimize estate taxes
  • distribute wealth to your family 

Here’s how a family trust works:

  • Protect Assets: Creditors, lawsuits, or divorces can put your assets at risk. A family trust keeps your assets safe by separating them from your personal holdings.
  • Reduce Estate Taxes: When you pass away, your estate might owe taxes. Transferring assets to a trust can lower these taxes.
  • Control Wealth Distribution: A trust lets you choose who gets your assets and when. You can set terms for distribution. For example, you might specify that a child can only access their inheritance at a certain age.
  • Avoid Probate: When you die, your estate usually goes through a process called probate. It’s a lengthy legal process where a court distributes your assets. A trust can avoid probate, allowing for a quicker and private distribution of assets.

A family trust gives you control over your assets. 

It helps to protect them, manage their distribution, reduce taxes, and avoid probate.

Read More: Who Needs A Trust Instead Of A Will?

Types Of Family Trusts

Here are the different types of family trusts that you can choose from:

  • Revocable Living Trusts: You can change a living trust or cancel them at any time. They help avoid probate but don’t offer tax benefits or asset protection.
  • Irrevocable Trusts: You can’t change or cancel irrevocable trusts. They provide strong asset protection and can offer estate tax benefits.
  • Testamentary Trusts: Testamentary trusts are created through your will after you pass away. They can provide for minors or others who shouldn’t receive a large sum all at once.
  • Marital or “A-B” Trusts: These trusts help married couples minimize estate taxes. When one partner dies, the trust splits into two – the ‘A’ trust for the surviving spouse, and the ‘B’ trust for the deceased’s beneficiaries.
  • Charitable Trusts: Charitable trusts provide for charities and also give you certain tax benefits. There are two main types: Charitable Remainder Trust (CRT) and Charitable Lead Trust (CLT).
  • Special Needs Trusts: Special needs trusts provide for a disabled beneficiary. They help the beneficiary maintain eligibility for government benefits.
  • Generation-Skipping Trusts: These trusts allow grandparents to pass assets to grandchildren, skipping their children. This avoids estate taxes that could apply if the assets were passed to the children first.
  • Qualified Personal Residence Trusts (QPRTs): Qualified Personal Residence Trusts hold your home or vacation property. They can help reduce your estate’s size and potentially minimize estate taxes.
  • Grantor Retained Annuity Trusts (GRATs): These trusts hold income-producing assets. The grantor receives income for a certain period, and then the remaining assets go to the beneficiaries.
  • Life Insurance Trusts: Life Insurance Trusts own your life insurance policy. They remove the policy from your taxable estate and provide funds to your beneficiaries.

Read More: How To Put A House In A Trust

Family Trust Pros And Cons

Family trusts are tools often used to protect assets and ensure future security for loved ones. 

They provide a high level of control over wealth distribution. 

Benefits such as asset protection, estate planning, and potential tax advantages come with them. 

But, like all financial strategies, family trusts also have downsides. 

These include legal costs, possible rigidity, and the potential for beneficiary conflicts. 

Therefore, it’s vital to consider these pros and cons. 

We will explore the key advantages and drawbacks of family trusts. 

This can guide you in deciding if they should play a part in your financial planning.

Read More: What Are The Disadvantages Of Putting Your House In A Trust?

Family Trust Benefits

The benefits of a family trust are:

  • Asset Protection: Family trusts protect your assets from creditors and lawsuits. The assets in the trust aren’t considered your personal property, so they can’t be seized to pay off personal debts.
  • Estate Planning: Family trusts help distribute your assets after death. You can specify who gets what and when, providing a clear road map for asset distribution.
  • Avoiding Probate: Family trusts bypass the probate process. This speeds up the transfer of assets to beneficiaries and maintains privacy.
  • Tax Benefits: In some cases, family trusts may offer tax advantages. This could mean lower estate, gift, or income taxes, depending on your situation.
  • Control Over Assets: A family trust allows you to dictate how beneficiaries use their inheritance. For example, you could stipulate that funds are used only for education or medical expenses.
  • Protection for Beneficiaries: Family trusts can protect beneficiaries who might not be able to manage their own finances, like minors or individuals with special needs.
  • Flexibility: Family trusts, especially revocable ones, can be altered or canceled as needed. This gives you the flexibility to adapt the trust to changing circumstances.
  • Stability: Family trusts ensure the management of assets remains stable even in case of the grantor’s incapacity or death. The trustee continues to manage the trust according to your instructions.

Read More: How To Put House In Trust With Mortgage

Family Trusts Disadvantages

The disadvantages of a family trust are:

  • Cost: Setting up a family trust involves legal fees and ongoing administrative costs.
  • Time: Establishing and maintaining a trust can be time-consuming due to legal complexities and administration.
  • Limited Access: Once you transfer assets into the trust, they no longer belong to you personally. It may limit your access and control.
  • Rigid Structure: A trust can be inflexible. Once you set up a trust, especially if it’s an irrevocable trust, it may be difficult or impossible to alter or terminate.
  • Potential Conflicts: The trustee’s decisions may lead to disagreements among beneficiaries, which could result in legal battles.
  • Tax Complications: Trust income might be taxed at higher rates. Also, transferring certain types of assets into a trust may trigger tax implications.
  • Professional Dependence: You may rely heavily on lawyers or professional trustees to manage the trust, adding to costs and potential complications.
  • Privacy Loss: In certain jurisdictions, details of the trust may become public records, particularly in legal disputes, leading to a loss of privacy.

Read More: At What Net Worth Do I Need A Trust?

Family Trust vs Living Trust

A family trust and a living trust are tools for managing your assets, but they have different uses and features.

A family trust is often a type of living trust. 

A family trust is set up to protect and manage the financial needs of family members. 

You create it, you can change it during your lifetime, and it becomes irrevocable upon your death. 

The term “family trust” often refers to the portion of assets in a living trust that avoids estate taxes.

A living trust, also known as a revocable living trust, is a legal entity you create to own your assets. 

You can alter or cancel it any time while you’re alive.

After your death, it becomes irrevocable. 

Its main goal is to:

  • avoid probate
  • keep your estate details private
  • ensure a smooth transition of your assets after death

To sum up, a family trust is usually a type of living trust with a specific focus on family financial needs. 

A living trust is a broader tool, designed for managing your assets during your lifetime and ensuring an easy transfer after your death.

Read More: Does Your House Have To Be Paid Off To Put It In A Trust

Who Owns The Assets In A Family Trust?

In a family trust, the legal owner of the assets is the trustee. 

The trustee holds and manages these assets on behalf of the beneficiaries. 

The trust itself, though a legal entity, does not technically own the assets. 

The beneficiaries, while they benefit from the trust assets, also do not directly own them. 

Instead, they have the right to benefit from the assets according to the terms of the trust. 

The person who created the trust, known as the settlor or grantor, also does not retain ownership once assets are transferred into the trust. 

Once assets are in the trust, they are legally owned by the trustee for the purpose of benefitting the trust’s beneficiaries.

Read More: ​​Does A Revocable Trust Become Irrevocable Upon Death

How Much Does It Cost To Set Up A Family Trust?

The cost of setting up a family trust varies on complexity and location.

Basic family trusts can cost around $1,000 to $3,000. 

More complex family trusts, like irrevocable trusts or special needs trusts, can range from $3,000 to $10,000+. 

Additional costs for a family trust may include:

  • attorney fees
  •  document preparation
  • administrative expenses 

It’s important to consult with a trust lawyer to get an accurate estimate of the cost to set up a trust.

Read More: How Much Does An Estate Have To Be Worth To Go To Probate?

Set Up A Family Trust

If you want help from a Georgia trust law firm, fill out the form below. 

At The Hive Law, we understand the importance of:

  • protecting your hard-earned assets 
  • ensuring your family’s future
  • not losing everything to creditors and lawsuits
  • properly (and legally) distributing assets 

We only accommodate a limited number of clients each month.

So don’t miss your opportunity to work with our trust fund lawyers.

Benefits of our trust services:

  • Tailored solutions to fit your unique needs and goals
  • Expert guidance in navigating complex tax and legal matters
  • Preservation of your wealth for future generations
  • Streamlined asset distribution according to your wishes

Avoid the pitfalls of inadequate estate planning strategies:

  • Creditors seizing your assets
  • Lawsuits jeopardizing your family’s financial security
  • Family disputes over inheritance
  • Costly and time-consuming probate processes

Talk soon.

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