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What is a family trust?

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Quick Answer

A family trust is an allocation of funds or assets made to the beneficiaries with some conditions attached, according to USA.gov, the U.S. government's official web portal. The family trust is managed by the trustee who has the power to release funds to the beneficiary if the conditions of the trust are met.

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Full Answer

A trust fund is set up by the grantor, who specifies the beneficiary, trustee and terms of the trust. This type of trust can be used to ensure the financial welfare of minor children and other family members who cannot manage the funds on their own, states USA.gov. The family trust can be structured in such a way that it helps avoid estate taxes and removes some assets from a person's direct possession so they qualify for pension and other benefits, explains Steve McLinden of Bankrate.

Family trusts are also a great way to provide for a surviving spouse while ensuring that the bulk of the assets are passed on to children from an earlier marriage, notes CNN Money. The trust can be set up to release installments of funds at certain stages, for college fees, for instance, or when a child wants to purchase a home.

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