Trusts are tried and true ways to pass wealth more efficiently to heirs when you die. Depending upon the type of trust used, it’s a way to avoid having your estate go through probate and be secured against certain taxes and creditor claims. But whether a family trust is right for you depends on a few factors, says a recent article from The Wall Street Journal, “What Is a Family Trust, and How Does It Work?”
A family trust is a type of living trust that designates assets to be passed to family members upon the grantor’s death. The grantor is the person who creates the trust, and the trustee is the fiduciary responsible for managing the trust’s assets on behalf of the beneficiaries. The beneficiaries are the people or persons who receive the assets in the trust. In a family trust, this could be children, grandchildren, or siblings.
A testamentary trust is a trust created in a will, with terms and instructions for the named executor to transfer assets from the estate into the trust, which the trustee then manages. The trustee distributes the trust’s assets in accordance with the trust’s terms. In some trusts, children must meet certain milestones, such as graduating from college or reaching a particular age.
Note that the term “family trust” is used for a living trust. However, a testamentary trust can also benefit the family and may also be considered a type of family trust.
There are two main categories of trusts: irrevocable and revocable. As the name suggests, a revocable trust allows the grantor to make many changes to the trust’s terms during their lifetime.
An irrevocable trust requires the grantor to relinquish control over their assets once they are placed in the trust. There are some benefits to an irrevocable trust: they are better secured against creditors or litigation and remove assets from the taxable estate. However, the trustee is in control, and the grantor must be willing to cede control of their assets.
To achieve their intended goals, trusts must be funded. This occurs by transferring ownership of assets, such as bank accounts or real estate, so they can be distributed to beneficiaries in accordance with the trust’s instructions.
There are as many types of trusts as there are reasons to need a trust:
A spendthrift trust is used when you want very tight controls over how assets are distributed because of beneficiaries who are likely to spend their inheritance quickly. The spendthrift trust might use a schedule for disbursing assets.
Special Needs Trusts (SNTs) are used for family members with a disability so they may have some assets while remaining eligible for benefits with asset limits. Supplemental Security Income (SSI) has an asset limit of $2,000 for individuals and $3,000 for married couples. The funds in the SNT are not countable for means-tested benefits.
Bypass trusts are used to transfer assets to the bypass trust upon the death of the first spouse. The beneficiary is a third party, such as the couple’s child or children, although the surviving spouse may benefit from the assets.
A trust provides far greater control over assets and how heirs receive their inheritance. Trusts can also be used to protect assets from Medicaid limitations, to preserve assets for biological children in a blended family and to make charitable donations.
Consult with an estate planning attorney to learn if a trust could be a useful tool for your estate.
Reference: The Wall Street Journal (Nov. 21, 2025) “What Is a Family Trust, and How Does It Work?”