Another type of estate plan is known as a “family trust.” The purpose of a family trust is to provide for the care and support of minor children after the death of both parents.
A family trust directs the distribution of an individual’s estate among his or her children. However, this does not automatically transfer ownership of the assets to the beneficiaries identified in the document. Instead, the trustee distributes the family’s assets according to the terms specified in the trust agreement. For instance, you can divide up the assets equally among all your children, but it gets distributed at set increments. For instance, they only get 25% when they turn 18.
Unlike a family trust, a living trust does not require court approval. Instead, a living trust is established by creating a document called a “trust agreement” that spells out how the trustee will manage the property owned by the trust.
While a living trust is a simpler alternative to a family trust, it doesn’t necessarily make sense for complex family arrangements. Or, if you are passing significant wealth to your children, you may want to divide it up differently to minimize tax burdens and avoid entitlement and work ethic issues.