Family Trust: What is it?

Most folks have heard about a family trust, and they may know that it has to do with the law, but they don’t know much about them. A family trust is an estate planning document organized to help hold and pass property upon a death. It may also be referred to a living revocable trust, a loving trust or other such names. This is the tool the wealthy use for estate planning because of its unique planning advantages.

Once a family trust is in place it will keep the estate private and prevent probate as long as it is properly written and funded. It should enable your heirs to easily manage your affairs without lawyer or court involvement. It is also a living document that can be used for tax planning and asset protection purposes. It is not the end all of asset protection. Some additional work in using the trust correctly is required, but in the end the trust can be a very effective tool.

A Word of Warning about a Family Trust

A word of warning about a family trust; it needs to be well written and carefully structured by taking into account the person’s needs. This week I was asked to review a single woman’s trust. Her husband had died about six months before. Prior to his death he had gone to an attorney and had a trust made. He had wanted to avoid probate and keep their estate’s affairs private. Unfortunately, his trust was a testamentary trust. It did not avoid probate or keep anything private.

Once the estate was settled, his wife went to one of the largest law firms in her town. She wanted to make certain that her daughters would not have to go through a probate upon her death. She got an 80 page family trust which was so complicated she brought it to me to make certain that it would not need to be probated. As I looked through it I was amazed.

I could see that the attorney included every provision that the firm had ever written in her trust. It took five pages to define dispositive provisions that I could have written in two paragraphs. It took pages to define what to do with polluted or “brown waste” properties. This widow only owned a small home in a pristine subdivision.

Frankly, while her family trust was funded and drafted so that it could avoid probate, I don’t think it would have kept the estate out of Probate Court upon the woman’s death because it was so complex. Upon her death the daughters would have needed to hire an attorney to unwind it. My point is that you should make certain your attorney gives you the documents you need. Not more and not less.

My book Protecting Your Financial Future gives you information about the family trust process and how to do the work or direct your professionals.