A family trust fund is a legal entity that holds assets and property to be passed on to other family members or beneficiaries. Establishing asset protection in the form of a family trust provides benefits to the person who sets up the arrangement, known as the grantor, as well as to the beneficiaries. The grantor must choose one or more individuals to act as a trustee to manage the legal entity. Other steps must also be taken before transferring assets and property into the trust fund.
A family trust provides one of many financial options when it comes to estate planning. This type of trust keeps wealth within a family by ensuring that all assets and property pass on to loved ones upon the grantor's death. The grantor controls what goes into the trust fund and who benefits from it. The grantor also works with a trustee who ultimately oversees the assets of the family trust fund upon the grantor's death.
Certain advantages exist in setting up a family trust fund for both the grantor as well as the beneficiaries. For example, the family trust provides a secure, financial resource for family members including minor children. Proper management of the account helps to protect the assets and prevents any beneficiary from squandering them. In addition, the person who arranges the trust fund can sometimes save on income, gift, and estate taxes. The availability of a family trust fund also generally allows beneficiaries to bypass probate and arrange for the assets to be transferred promptly upon the grantor's death.
Besides choosing beneficiaries such as a spouse, children, grandchildren, or other relatives, the grantor of the family trust fund must pick one or multiple trustees. A relative or a close friend with solid financial experience may act as a trustee. An impartial, third-party source, such as an estate attorney or a financial trust corporation, may also manage the trust fund. Multiple trustees may also be designated in case one trustee dies or is unable to continue managing the assets.
An important step in establishing a family trust fund involves drafting a legal document that states in writing the person's wishes, names of the beneficiaries, the property and assets in the trust, names of the trustee or trustees, and special instructions for the trustee or group of trustees, such as when and how to disburse funds to certain beneficiaries. The document must be certified and filed with the attorney or trust corporation. Depending on the place of residence, the grantor may also have to file a copy of the trust document with the recorder of deeds office or equivalent government agency in that jurisdiction. Upon completing the documentation process, the grantor may transfer the assets into the trust.