"Family trust" is one of the most commonly used phrases in estate planning and one of the least precisely defined. In most conversations it is not a distinct legal instrument at all. It is an informal description of a trust set up to hold family assets, and in the overwhelming majority of cases the document being described is a revocable living trust.
There is one context where the term does carry a specific technical meaning, and it matters. This guide covers what people usually mean, how the informal term maps to actual documents, where the technical usage applies, and why the confusion causes real problems when families compare quotes between firms.
What People Mean by "Family Trust"
In everyday use, "family trust" describes any trust created to hold assets for the benefit of a family. It is a description of purpose, not a category of legal document.
When someone says they want to set up a family trust, they are almost always describing what a revocable living trust does: hold the family's assets in one structure, keep them out of probate, and pass them to the next generation on terms the family sets.
The phrase persists partly because it is intuitive and partly because usage differs by country. In Australia and New Zealand, a family trust is a specific discretionary structure used largely for tax purposes, and it does not have a direct equivalent in United States law. Much of the material online about family trusts is written for those jurisdictions, which adds to the confusion for American families researching the term.
Terms that usually describe the same document
These phrases are frequently used interchangeably to mean a revocable living trust:
- Family trust, a description of who benefits
- Living trust, a description of when it takes effect, during your lifetime
- Revocable trust, a description of whether you can change it
- Inter vivos trust, the formal Latin term, meaning "between the living"
- Grantor trust, a tax term describing who is treated as the owner
These are not competing products. They are different ways of describing overlapping features of the same instrument. A single document can accurately be called all five.
If a family says they want a family trust and they are describing probate avoidance, keeping things private, and passing assets to children, the document that does that is a revocable living trust. The full guide to how those work covers the mechanics.
Family Trust vs. Living Trust
Asked as a head-to-head comparison, the honest answer is that these are usually not two different things. The more useful comparison is between a revocable living trust and the specific technical structure people sometimes mean.
If you have been told you need a "family trust" and you are trying to work out how it differs from a living trust, there are two possibilities. In most cases, they are the same document under two names. In a narrower case, the person means a credit shelter trust, which is a genuinely different structure covered in the next topic.
Here is how a revocable living trust compares to that technical structure:
| Dimension | Revocable Living Trust | Credit Shelter / Bypass Trust |
|---|---|---|
| Can it be changed? | Yes, at any time during your lifetime | No, once it is funded at the first spouse's death |
| When it is created | During your lifetime | Typically at the first spouse's death, under the terms of an existing plan |
| Who it is for | Anyone who wants to avoid probate and plan for incapacity | Married couples with estates large enough for federal or state estate tax exposure |
| Primary purpose | Probate avoidance, incapacity planning, privacy | Preserving both spouses' estate tax exemptions |
| Counted in the surviving spouse's estate | Yes | No |
| Who typically needs one | Most families | A narrow subset with meaningful estate tax exposure |
The distinction matters most when a family is comparing proposals. A quote for a "family trust" could mean a standard revocable living trust or a more complex two-trust structure with meaningfully different drafting and administration. Asking which one is being described is a reasonable question to put to any firm.
When "Family Trust" Means Something Specific
In estate tax planning for married couples, "family trust" is a conventional name for the credit shelter trust, also called a bypass trust or B trust. This is a real, distinct structure with a specific job.
The purpose is to preserve both spouses' estate tax exemptions. Without planning, assets passing outright to a surviving spouse can end up taxed in that spouse's estate, and the first spouse's exemption may go unused. A credit shelter trust holds an amount up to the exemption at the first death, so those assets are excluded from the survivor's taxable estate while still being available to support them during their lifetime.
The A/B structure
Where this arrangement is used, the plan typically splits at the first death into two trusts:
- The marital trust (A trust), holds assets qualifying for the unlimited marital deduction, available to the surviving spouse
- The family or credit shelter trust (B trust), holds assets up to the exemption amount, excluded from the survivor's estate
This is the usage that makes "family trust" a technical term rather than a description. It appears in existing plans, in attorney conversations, and in documents drafted for couples with estate tax exposure.
Federal portability rules now allow a surviving spouse to claim a deceased spouse's unused exemption in many circumstances, which means the A/B structure is used less often than it once was. Some plans drafted years ago still contain mandatory splitting provisions written for an earlier set of rules. Plans built before portability are worth reviewing on this point. Advanced planning strategies covers the wider picture, and state-level estate taxes can change the analysis independently of federal rules.
Whether this structure applies to a given family depends on the size of the estate, the state of residence, and how an existing plan is drafted. Families with estates approaching federal or state thresholds are the ones for whom the question is live.
Why the Terminology Matters
Loose vocabulary makes it hard to compare what firms are actually proposing, and hard to know whether an existing plan does what a family thinks it does.
Comparing quotes between firms
Two proposals can both say "family trust" and describe substantially different work. One may be a standard revocable living trust. Another may include a two-trust structure with tax provisions and separate administration after the first death. The scope, the drafting, and the ongoing obligations are not comparable, even when the label is identical.
Reading a plan you already have
Families often inherit plans drafted decades ago and refer to whatever is in the binder as the family trust. Whether that document is a simple revocable trust or contains mandatory A/B splitting provisions written under older exemption rules is a meaningful difference, and it affects what happens at the first death.
Useful questions to ask
- Is this a revocable living trust, or does the plan split into more than one trust?
- If it splits, is the split mandatory or discretionary?
- Was the plan drafted before or after portability became available?
- Does the quote include funding the trust, or only drafting the documents?
- Are powers of attorney and advance directives included, or priced separately?
The last two matter regardless of terminology. A trust that is never funded does not avoid probate, and the incapacity documents are what handle the years before any trust distributes anything.
Not sure what your plan actually says?
A 45-minute conversation with an eLegacy attorney is the right starting point. We will look at what you have, explain what the documents do in plain language, and quote a flat rate up front if changes make sense.
And eLegacy manages trust funding from start to finish, so the plan does what it was designed to do.
Educational information, not legal advice. The information in this guide is general in nature and intended for educational purposes only. It is not legal advice, does not constitute attorney-client representation, and should not be relied upon for decisions specific to your situation. Estate planning law varies by state and by individual circumstances. For guidance specific to your situation, schedule a consultation with an eLegacy attorney.