A trust is essentially a special legal relationship regarding property ownership. Trusts can be broadly categorized into public trusts and private trusts, with the primary distinction being the beneficiaries. Public trusts are established for the benefit of the general public, while private trusts are created for the benefit of specific individuals or groups. In the case of family trusts, the majority are classified as private trusts.

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Types of Family Trusts:

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1. Living Trust (Inter Vivos Trust):
   A living trust is established during the lifetime of the settlor (the person creating the trust). It is typically created with the help of an attorney, who drafts a trust document outlining the detailed instructions and terms for asset management. Once established, a living trust becomes effective immediately.

   • A living trust can receive ongoing property transfers from the settlor as well as donations from others.

   • Since ownership of the assets is transferred during the settlor's lifetime, the assets held in the trust are not subject to probate upon the settlor's death.

2. Testamentary Trust:
   A testamentary trust, also known as a posthumous trust, is established to manage affairs after the settlor’s death and only comes into effect upon their passing.

   • The assets in a testamentary trust are part of the settlor's estate, requiring probate and the payment of applicable estate taxes.

   • Testamentary trusts can be amended during the settlor's lifetime by drafting a new will.

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Who Needs a Family Trust?

Although family trusts are often associated with high-net-worth families, they are not exclusively for the wealthy. Trusts can also help average families achieve their estate planning goals. For example:

• Divorced parents can establish individual trusts for their children to safeguard their assets from the potential impact of future remarriages.

• Grandparents can create trusts for their grandchildren as a reserve for future education or entrepreneurial ventures.