What Is a Family Trust?
The moment someone mentions a ‘family trust,’ it’s easy to start questioning your entire estate plan—or lack thereof. “Family trust” just sounds official—like one of those things responsible people already have figured out.
If you’ve ever had that moment—usually right after talking to a friend who just finished their estate plan or seeing a headline with bold promises—you’re not alone.
And if you love your family (and who admits they don’t?), then of course you should have one… right?
Well, maybe. But before you rush off to fix this apparent hole in your legacy plan, it’s worth pausing to ask: what is a family trust, really?
The answer might surprise you—because “family trust” isn’t a specific type of trust at all. It’s more of a nickname.
A Family Trust can be many things; and like all trusts, the answer to what type you have lies in the details.
“Family Trust” Is a Label, Not a Legal Term
Unlike “Revocable Living Trust” or “Irrevocable Trust,” which describe the actual structure and legal mechanics of the trust, the term family trust is more of a nickname. It generally refers to any trust created to benefit members of a family, but it doesn’t indicate what kind of trust it is—or how it operates under the hood.
In other words, “family trust” tells you who the trust is for, but not what kind of trust it is.
One Name, Many Structures
Because it’s a broad term, a family trust could refer to:
- A Revocable Living Trust used to avoid probate and pass assets to children
- An Irrevocable Life Insurance Trust (ILIT) designed to exclude life insurance proceeds from the taxable estate
- A Bypass Trust or Credit Shelter Trust often used by married couples to preserve estate tax exemptions
- A Dynasty Trust intended to benefit multiple generations while avoiding estate taxes over time
- A Grantor Retained Annuity Trust (GRAT) for shifting asset growth to heirs with minimal tax consequences
- A Special Needs Trust for the long-term care of a disabled child or relative
Each of these trusts can serve family members—but each comes with very different rules, tax treatment, and planning goals.
Because “family trust” isn’t a technical term, it’s important not to make assumptions about what someone means when they use it.
A couple might say, “We set up a family trust,” when in reality, they’ve established a simple revocable trust that still exposes their assets to long-term care risks, lawsuits, or estate taxes.
Another person might use the same phrase to refer to a multi-generational dynasty trust with highly complex rules and asset protections.
Trusts Role in Financial and Estate Planning
Trusts aren’t magic. They’re planning tools designed to accomplish specific goals—like avoiding probate, protecting assets, or reducing taxes. In the right situation, they can be incredibly effective. But in the wrong one, they may add unnecessary complexity, cost, and paperwork without delivering meaningful benefits. The key is matching the tool to the job, not the label.
What are most Family Trusts?
Let’s go ahead and answer the question: What is a family trust?
The most accurate answer is—it depends. A “family trust” could take many forms, depending on the goals and structure involved. But in most cases, when people use that term, they’re referring to a Revocable Living Trust.
If you’re not familiar with what that is, this article is a great place to start: What Is a Revocable Living Trust and Do You Need One? – Gilbert Wealth