You establish a family trust by signing a trust agreement that names a trustee and beneficiaries, then retitling your assets into the trust. Done right, the trust lets your family skip probate, which can take 1 to 2 years and cost tens of thousands of dollars in fees.
Most Americans have no plan at all. In the 2025 Caring.com Wills and Estate Planning Study, only 24% of adults said they had a will and 13% said they had a living trust. Federal estate tax is not the reason most families need a trust: the federal estate tax exemption is $15,480,000 per person for 2027 under Rev. Proc. 2026-35. For most families a trust is about probate, privacy, control and planning for illness, plus knowing what tax filings the trust itself creates. The steps, state rules, Medicaid planning, funding, 13 examples and common mistakes below cover all of that.
What Is a Family Trust (and Why Use One)?
A family trust is a legal arrangement where you (the grantor) transfer assets to a trust, managed by a trustee for your beneficiaries. Think of it as a container for your house, accounts and investments, with your written instructions attached.
A will only takes effect when you die. A family trust, usually a revocable living trust, works as soon as you create and fund it. You keep control while alive and can amend or revoke it. If you become incapacitated, your successor trustee manages the assets without a court order. At your death, the assets pass under the trust's terms without probate. Deciding between a trust or a will usually turns on whether you own a home and how much privacy you want.
Trusts also solve specific problems. They stay private, while wills become public records. They let you pay out an inheritance in stages. One trust prevents a separate probate case in each state where you own property. If one child spends poorly, the trust can hold that share and pay it out responsibly.
Who Does What in a Family Trust
These are the people, documents and rules that make a family trust work:
- Grantor (settlor or trustor): the person who creates the trust, moves assets into it and writes the rules.
- Trustee: the person or institution that manages the assets and owes the beneficiaries a fiduciary duty. In a revocable trust you usually serve first, then a successor trustee takes over.
- Beneficiaries: the people or organizations who benefit, by receiving income, using assets or inheriting outright. A family trust usually names a spouse, children or other relatives.
- Trust agreement: the document that creates the trust and names the grantor, trustees and beneficiaries, with every rule for how and when money is paid out.
- Funding: retitling assets from your name into the trust's name. Until you do this, the trust is an empty safe.
- Revocable vs. irrevocable: a revocable trust can be changed or canceled by the grantor at any time. An irrevocable trust usually cannot be changed without court approval or beneficiary consent.
- Probate court: the state court process that handles estates after a death. Keeping trust assets out of it saves time and fees and keeps your affairs private.
- Medicaid and asset protection: assets in a revocable trust are not protected from nursing home costs or creditors. Certain irrevocable trusts can shield them, but only once you give up control.
- Overlapping roles: you can be grantor, initial trustee and beneficiary of your own revocable trust at once. At your death, the successor trustee takes over without a gap.
The Internal Revenue Service (IRS) treats a revocable trust as part of you while you are alive, so its income goes on your own return under your Social Security number. After you die, the trust may need its own tax filings, covered in the taxation section below.
Pros and Cons of Family Trusts
Every estate planning tool has trade-offs. Here are the main upsides and downsides of a family trust:
Pros and cons of a family trust (2027 federal rules):
| Pros | Cons |
|---|---|
| Avoids probate: skips a long, public court process, so your family gets faster access to assets and keeps privacy. | Upfront cost: a trust needs attorney time and fees, so it costs more than a basic will. |
| Flexibility (if revocable): you keep control and can change the trust as life changes. | Complexity: trusts require paperwork and careful retitling. Forgetting to fund the trust can erase its benefits. |
| Control over distribution: you set rules, such as age milestones, for how and when heirs receive money. | Ongoing management: assets must stay titled in the trust, and irrevocable trusts often need separate tax returns. |
| Potential tax benefits: irrevocable trusts can remove assets from your taxable estate and protect them from Medicaid spend-down. | Loss of control (if irrevocable): once assets go in, you generally cannot take them back. |
| Protects beneficiaries: shields inheritances from heirs' mismanagement, creditors or divorcing spouses. | Not always necessary: for small, simple estates, beneficiary designations or joint ownership may do the job. |
Because federal estate tax reaches only estates above the 2027 federal exemption (see the figures table), the tax benefit for most families is state-level or Medicaid-related.
Revocable vs. Irrevocable Trusts: Which Do You Need?
A revocable trust, often called a living trust, stays under your control during your lifetime. You can change beneficiaries or trustees or cancel it, so the assets remain yours for income tax, estate tax and creditor purposes. Whether family trusts are revocable depends entirely on how the document is written. A revocable trust avoids probate and keeps things running if you become incapacitated. It does not cut taxes or protect assets from nursing home costs or lawsuits.
An irrevocable trust is locked once you sign it. You give up control, and in return the assets usually leave your estate and sit beyond the reach of creditors or Medicaid.
Most plans start with a revocable living trust because it adapts. If you set up a trust at 40 and have another child at 45, you simply amend it to add the baby. Irrevocable trusts fit special goals: an irrevocable life insurance trust (ILIT) to keep insurance proceeds out of your taxable estate, a Medicaid asset protection trust, or a dynasty trust for future generations. Never put in anything you might need back.
Sometimes you use both. A couple's revocable trust often splits into irrevocable trusts when the first spouse dies. A surviving spouse can keep the deceased spouse's unused federal exemption through portability, elected on a timely filed Form 706; Rev. Proc. 2022-32 allows a late election up to 5 years after death. A credit shelter (bypass) trust still locks growth outside the survivor's estate, covers state estate taxes that have no portability (New York, Massachusetts, Illinois and others), uses the generation-skipping transfer (GST) exemption, and protects blended families. The choice comes down to flexibility versus protection.
Federal Rules & State-by-State Nuances (California, New York, Texas, Florida)
Federal law mostly matters for taxes. State law controls how a trust is created and run.
The One Big Beautiful Bill Act (Public Law 119-21) permanently set the federal basic exclusion amount at $15,000,000 for 2026, indexed for inflation after that, so the feared 2026 drop never happened. For 2027 it is $15,480,000 per person under Rev. Proc. 2026-35, or about $30.96 million for a married couple using portability. Below that, you owe no federal estate tax, trust or no trust.
The gift tax shares that lifetime exemption. The annual gift exclusion is $19,000 per recipient for 2026 under Rev. Proc. 2025-32 and $20,000 for 2027. Larger gifts require a Form 709 return and use part of the lifetime exemption. The GST exemption equals the basic exclusion.
A revocable trust is ignored for income tax. An irrevocable non-grantor trust is a separate taxpayer with compressed brackets (see the table below), which is why many trusts pay income out to beneficiaries, who usually pay lower rates.
Most states base their trust laws on the Uniform Trust Code. A trust made in one state is generally valid in another, but have it reviewed if you move.
California
California has no estate tax but slow, costly probate, so living trusts are standard there. Married Californians often use a joint trust, which preserves a step-up in basis on the whole community property at the first spouse's death. Proposition 19 changed property tax reassessment when property passes to children, and a trust does not avoid reassessment unless specific conditions are met.
New York
The New York basic exclusion amount is $7,350,000 for deaths in 2026; the Department of Taxation and Finance has not yet announced the 2027 amount. If the estate exceeds the exclusion by more than 5% ($7,717,500 for 2026 deaths), the exemption disappears and the whole estate is taxed at rates up to 16%. With no portability, couples with large estates use a credit shelter trust. The U.S. Supreme Court's Kaestner decision limits a state's power to tax trust income just because a beneficiary lives there.
Texas
Texas has no income tax and no estate tax. Texans use trusts to avoid probate and often hold community assets in a joint revocable trust for basis reasons. A revocable trust usually keeps Texas homestead protection, but confirm with a local attorney.
Florida
Florida has no estate or income tax, and trusts help families avoid slow probate. The state constitution protects the homestead from creditors and limits how you can leave it if you have a spouse or minor child. A revocable trust can hold the homestead without losing creditor protection, but it must respect those inheritance rights.
Other states
Pennsylvania and New Jersey impose inheritance taxes based on who inherits, which a trust does not avoid (New Jersey's estate tax was repealed in 2018). Massachusetts taxes estates above $2,000,000 (set in 2023, not indexed) and Illinois taxes estates above $4,000,000, so trusts there are used to reduce state tax. Delaware, Nevada, South Dakota and Alaska allow very long-lasting trusts and asset protection trusts, and do not tax properly structured trust income.
Key Federal Estate, Gift and Trust Tax Figures: 2026 vs. 2027
| Item | 2026 | 2027 |
|---|---|---|
| Basic exclusion amount (estate and gift) | $15,000,000 | $15,480,000 |
| GST exemption | $15,000,000 | $15,480,000 |
| Annual gift exclusion per recipient | $19,000 | $20,000 |
| Annual exclusion for gifts to a non-citizen spouse | $194,000 | $201,000 |
| Top estate and gift tax rate | 40% | 40% |
| Trust taxable income where the 37% bracket starts | $16,000 | $16,500 |
Sources: Rev. Proc. 2025-32 for 2026 and Rev. Proc. 2026-35 for 2027.
Trusts and Medicaid Eligibility: Qualifying for Nursing Home Care Without Going Broke
Medicaid pays for nursing home care only if you have very limited assets, and it reviews your finances for the past 5 years (the look-back period). A Medicaid asset protection trust is an irrevocable trust that holds your home or savings so that, after five years, they no longer count against you. You name a trustee, often an adult child. The trust may pay you income, but you cannot touch the principal.
The payoff is large. In the 2025 CareScout Cost of Care Survey, the national median cost of a private nursing home room was $10,798 per month. A widow who moved her $300,000 house and $200,000 of savings into a Medicaid trust years earlier can qualify while keeping about $2,000 in her own name, the typical individual asset limit in most states.
Any transfer within five years of applying triggers a penalty period, in proportion to the amount moved, during which Medicaid pays nothing. Trusts are usually written so you can live in the house for life, with any sale proceeds staying in the trust.
Rules vary by state. California reinstated a Medi-Cal asset limit of $130,000 for one person on January 1, 2026 (DHCS ACWDL 25-14), and its look-back reaches only transfers made on or after that date. Set up the trust at least five years ahead with an elder law attorney who knows your state. Done right, it also shields assets from Medicaid estate recovery after death, and from lawsuits and creditors, as long as you set it up before any trouble starts.
Step-by-Step: How to Set Up a Family Trust
Setting up a family trust can feel daunting, but it breaks down into six clear steps. Here is how to establish your trust from first decision to ongoing upkeep:
Step 1: Define Your Goals and Choose the Right Type of Trust
Start by writing down what you want. If your main goals are avoiding probate and a straightforward inheritance, a revocable living trust is likely the answer. If you have a narrower goal, such as reducing estate tax, planning for Medicaid or providing for a disabled child, you may need an irrevocable trust or a specialized trust such as a special needs trust. Married couples also decide here between one joint trust and two separate trusts; community property states often favor a joint trust, while blended families often favor separate ones. Discuss your list with an estate planning attorney before anything is drafted. Clear goals guide every later choice.
Step 2: Choose Your Trustee and Successor Trustees
For a revocable family trust, you (and perhaps your spouse) will usually be the first trustee so you keep control. The bigger decision is the successor trustee who takes over when you cannot serve. Pick someone responsible, trustworthy and comfortable with money: an adult child, a sibling, a close friend, or a professional fiduciary or trust company if the estate is complex or family dynamics are tense. Talk to the person first; a trustee has real work to do. Name at least one backup so there is never a gap. A trust with only one trustee is common and valid, but co-trustees who disagree can stall every decision, so choose for cooperation, not birth order.
Step 3: Draft the Trust Document
Now everything goes in writing. Have an experienced estate planning attorney draft the trust so it meets your state's requirements and captures your wishes. The agreement names the beneficiaries, sets the trustee's powers, and spells out how and when assets are paid out (for example, "hold my child's share until 25, then pay half, and the rest at 30"). It should also cover what happens if a beneficiary dies before you or has special needs.
Ask for these clauses by name: a spendthrift clause that keeps creditors away from a beneficiary's share; a clear definition of incapacity so the successor can step in without a court fight; broad trustee powers to sell, invest and manage real estate; and, for an irrevocable trust, a decanting or trust protector clause so a trusted third party can fix problems later. DIY kits exist, but a flaw here can undo the whole plan.
How Much Does It Cost to Set Up a Family Trust?
Online or do-it-yourself trusts typically cost a few hundred dollars. In an October 2026 poll of Long Angle members, 97 of 130 people with a will plus a revocable living trust paid under $5,000 for the package, while 25 of 33 whose plans included irrevocable trusts such as an ILIT, Medicaid trust or special needs trust paid $10,000 or more. That poll covers one community, so get local quotes; the cost to set up a trust varies by state.
Budget for extras: deed recording fees of a few dozen to a few hundred dollars per property, annual tax-prep fees for an irrevocable non-grantor trust, and trustee fees if you use a professional. Compare that with probate: California's statutory fee on a $1,000,000 estate is $23,000 for the attorney and another $23,000 for the executor.
Step 4: Sign and Notarize the Trust
Once you have reviewed the document, you formally execute it by signing in front of a notary public. Some states add witness rules. In Florida, under Fla. Stat. §736.0403(2)(b), the parts of a revocable trust that give away property at death are invalid unless the trust is signed with the same formalities as a will, which means two witnesses, and Florida deeds also need two witnesses. Many states now allow remote online notarization, so check what your state accepts. Notarization proves you signed, which banks and title companies will demand when you move assets in.
You sign as grantor and, if you named yourself, as initial trustee. Some trusts also have the trustee sign an acceptance. Store the original in a fireproof safe or safe deposit box and tell your successor trustee how to reach it.
Step 5: Fund the Trust by Transferring Assets
With the ink dry, you must fund the trust. Skip this step and the trust does nothing. Funding means retitling assets in the trust's name: a new deed moving your home to "Jane Doe, Trustee of the Doe Family Trust dated [date]," new ownership paperwork at your bank and brokerage, stock certificates reissued or deposited in a trust account, and updated beneficiary forms where the trust should receive life insurance or retirement money. The funding section below walks through each asset type. Any asset left outside the trust is not governed by it and could end up in probate.
Step 6: Update Your Estate Plan and Keep the Trust Current
A trust is not a one-time task. After funding, have your attorney prepare a pour-over will, a safety net that sweeps any asset you forgot into the trust at death. Update your financial power of attorney so your agent can deal with trust assets, and update healthcare directives and guardian nominations for minor children (only a will can name a guardian). Then review the trust every few years and after triggers such as marriage, divorce, a birth, a death, a move to another state, or a major tax-law change such as the 2025 estate tax changes in the One Big Beautiful Bill Act. A revocable trust can be amended any time. Keep a roadmap so your family knows the trust exists and where the documents are.
How a Family Trust Is Taxed: EIN, Form 1041 and Grantor Trust Rules
While you are alive, a revocable trust is a grantor trust. Its income goes on your Form 1040 under your Social Security number, and the trust files no return.
At your death the trust becomes irrevocable and a separate taxpayer. The successor trustee applies for an employer identification number (EIN), files Form 56 to report the fiduciary relationship, and files Form 1041 for any year the trust has gross income of $600 or more or a nonresident alien beneficiary. A §645 election treats the trust as part of the estate for income tax, allowing a fiscal year and one combined return.
An irrevocable non-grantor trust files Form 1041 every year. Income it keeps is taxed at the compressed trust brackets; income it pays out is reported to beneficiaries on Schedule K-1 at their own rates, which is why trustees often distribute income each year. Gifts above the annual exclusion into an irrevocable trust also require Form 709.
Basis differs too. Revocable trust assets are in your estate and get a stepped-up basis at death. Under Rev. Rul. 2023-2, assets in an irrevocable grantor trust outside your estate get no step-up.
Funding Your Trust: Transferring Assets into the Trust
Here is how to move each type of asset into your trust.
Real estate
Sign a new deed from you to you as trustee, notarize it and record it with the county. The Garn-St Germain Act (12 U.S.C. §1701j-3(d)(8)) bars lenders from calling the loan due when you move your home into a revocable trust and remain the beneficiary and occupant. Some states require special deed language to keep homestead protections.
Bank, brokerage and investment accounts
Give each institution a certification of trust and have accounts retitled in the trust's name. Ask the transfer agent to reissue paper stock certificates. Electronic savings bonds are retitled through TreasuryDirect; paper bonds are reissued with FS Form 1851.
Life insurance
Name the trust as beneficiary, or transfer ownership to an ILIT to keep the payout out of your taxable estate. Under IRC §2035, if you die within 3 years of transferring a policy, the payout returns to your estate, so many ILITs buy a new policy.
Retirement accounts
Do not retitle a 401(k) or individual retirement account (IRA) into a trust; that counts as a taxable distribution. Use the beneficiary form, usually your spouse first and the trust as contingent beneficiary. A 401(k) requires written spousal consent to name anyone else. Most non-spouse and trust beneficiaries must empty an inherited account within 10 years. Under the final IRS regulations that apply from 2025, if the owner died on or after the required beginning date, they must also take annual required minimum distributions in years 1 through 9. A see-through trust can be a conduit trust, which passes each distribution on, or an accumulation trust, which can hold the money.
Business interests, personal property and safe deposit boxes
Assign business shares or LLC units to the trust and update the company records; for an S corporation, confirm the trust qualifies as a shareholder (a revocable grantor trust or a QSST does). A general assignment moves jewelry, furniture and art. Many people leave cars out and use DMV transfer forms. Rent a safe deposit box in the trust's name or add your successor trustee.
The golden rule: an asset not titled in the trust, or payable to it at death, may go through probate.
5 Common Scenarios Where a Family Trust Helps
Family trusts are not one-size-fits-all. Here are five common situations and the trust that solves each:
Five situations and the trust that fits (2027 federal rules):
| Scenario | Trust Solution |
|---|---|
| Parents with young children worry what happens to the kids' inheritance if they die early. | A revocable living trust whose successor trustee manages money for the children until a set age, with no court guardianship of funds. |
| Second marriage: provide for the current spouse but leave assets to first-marriage children. | A marital (QTIP) trust pays the spouse for life; what remains goes to the first-marriage children. |
| High net worth family concerned about estate tax on a large life insurance policy. | An ILIT owns the policy so the payout stays out of the taxable estate. |
| Aging parents expect nursing home costs but want to keep the family home for the kids. | A Medicaid asset protection trust holds the home; the look-back is 5 years in most states, and the parents keep the right to live there. |
| Family has a disabled child on SSI and Medicaid and wants to leave an inheritance. | A third-party special needs trust pays for extras the government does not cover, so the child stays eligible. |
An ILIT makes sense for estates above the 2027 federal exemption or for estates exposed to state estate tax.
13 Detailed Examples of Family Trusts in Action
These 13 real and realistic cases show how family trusts solve problems.
1. Young parents avoiding probate
Alice and Ben, both 30, set up a revocable trust when their first child is born. They die in a car accident three years later. Their successor trustee pays the kids' living and school costs at once, with no probate delay.
2. Blended family protection
David's trust creates a QTIP trust for his second wife, Sarah: income for life and principal for health needs, but no power to change the final beneficiaries. When Sarah dies, what remains goes to his children from his first marriage.
3. Medicaid planning for long-term care
Maria, 70, a widow, moves her home and savings into an irrevocable Medicaid trust with one son as trustee. Five years later she qualifies for Medicaid nursing home care because the trust assets do not count. At her death they pass to her sons.
4. Life insurance for estate tax
Mei and Wei Chang have a $45 million estate, well above the combined 2027 exemption of about $30.96 million for a married couple using portability. Their ILIT buys a $5 million policy on Wei's life, funded with annual exclusion gifts. The payout lands outside the taxable estate and gives the family cash to pay the 40% estate tax on the excess without a fire sale of buildings.
5. Special needs child's trust
Jenna's son Liam, 25, has autism and receives SSI and Medicaid. At her death, her trust pours his share into a special needs trust run by her brother Tom. It pays for housing upgrades, a caregiver and therapy without affecting Liam's benefits.
6. Avoiding a California probate nightmare
Priya's living trust holds her $800,000 Los Angeles house and $200,000 of savings. When she dies, her daughter inherits within a couple of months, with no public court file, and saves about $46,000 in statutory probate fees on a $1 million estate.
7. The danger of not funding the trust (a celebrity lesson)
Michael Jackson created a family trust but never moved many assets into it, so much of his estate went through years of public probate. Robin Williams funded his trusts, so most of his estate avoided probate. Even so, his widow and children went to court over personal items and the house before settling. Fund the trust, and spell out exactly who gets what.
8. Smooth business succession
Carlos moves his Texas family restaurant and its building into a revocable trust with his daughter as successor trustee. When he dies, she runs the restaurant the next day, with no months in probate.
9. Spendthrift protection for an heir
Elaine's trust holds her daughter Rachel's share under a spendthrift clause because Rachel struggles with money and debt. The trustee pays housing and health costs plus a managed allowance. Creditors cannot reach the trust itself, only money after it is paid out.
10. Billionaire trust battle (Murdoch's lesson)
Rupert Murdoch's irrevocable family trust gave his four older children equal votes in his media empire. In December 2024 a Nevada court blocked his attempt to give his eldest son control, finding bad faith. In a September 2025 settlement, James, Elisabeth and Prudence were bought out for about $3.3 billion in total, Lachlan got sole voting control, and the restructured trust runs to 2050. An irrevocable trust binds even its grantor.
11. Generational wealth preservation (dynasty trust)
The Lee family sells a startup for $50 million and sets up a dynasty trust in South Dakota, which allows perpetual trusts and has no state income tax on trust assets. Only the amount covered by each grantor's GST and gift exemptions passes free of transfer tax. Gifts above that trigger gift tax, so the plan uses techniques such as sales to the trust for the rest.
12. Don't forget to update (an ex-spouse issue)
Olivia never updated her trust after her divorce, so her ex-husband was still beneficiary and co-trustee when she died, and a dispute with her partner followed. A trust can protect assets from divorce only if it is updated after the divorce.
13. Providing for pets
Sarah's trust sets aside $50,000 for her two dogs. A trustee pays her friend Emily for their care and covers vet bills, and any money left goes to an animal charity. Most states now allow pet trusts.
7 Common Mistakes to Avoid When Setting Up a Family Trust
Here are seven mistakes to avoid:
- Procrastinating: without any plan, your family may face a costly probate or a legal fight. Set up your plan while you are healthy and of sound mind.
- Choosing the wrong trust: a revocable trust avoids probate but does not shield assets from creditors. An irrevocable trust protects assets but costs you control. Match the tool to the goal.
- Failing to fund the trust: an unfunded trust is useless. If you refinance, the lender may take the house out of the trust temporarily, so put it back afterward.
- Picking the wrong trustee: naming the eldest child by default, or co-trustees who cannot agree, causes mismanagement and stalled decisions. Pick for ability and discuss it in advance.
- Neglecting to update your trust: marriages, divorces, births, deaths and law changes such as the 2025 One Big Beautiful Bill Act estate tax changes all call for a review.
- Assuming a trust avoids all taxes: a revocable trust changes nothing about your income tax or your taxable estate. Tax savings require irrevocable trusts and gifting.
- DIY drafting without guidance: templates often miss a needed power or clause. Have an attorney draft or at least review the document.
What to do next
- List your assets and goals, and decide whether a revocable or irrevocable trust fits.
- Choose a trustee and at least one successor, and ask them first.
- Have an attorney draft and notarize the trust, then record new deeds and retitle accounts.
- Update beneficiary forms on life insurance and retirement accounts.
- Sign a pour-over will and calendar a review every three years or after any major life or tax-law change.
Common Family Trust Questions Answered
Do I still need a will if I have a trust?
Yes. You need a pour-over will to catch assets left outside the trust and to name guardians for minor children. A trust works alongside a will, not in place of it.
Can I be the trustee of my own family trust?
Yes. With a revocable living trust you usually serve as initial trustee and manage assets as before. Just name a capable successor trustee for when you cannot serve.
Does a revocable trust protect my assets from lawsuits or creditors?
No. You still own and control the assets, so creditors can reach them. Only a properly structured irrevocable trust can shield assets, and only if it was set up well before any claim arose.
Will a family trust reduce my income or estate taxes?
Not by itself. A revocable trust saves no tax. Federal estate tax applies only above the 2027 federal exemption (see the figures table), but some states tax much smaller estates (Massachusetts above $2,000,000; New York above $7,350,000 for 2026 deaths). Cutting those taxes takes irrevocable trusts and gifting strategies.
Can I change beneficiaries or terms of the trust later on?
Yes, if it is revocable: amend it any time while you are alive and competent. An irrevocable trust generally cannot be changed except by beneficiary consent, a court order, decanting or a trust protector clause written in from the start.
Can I put my 401(k) or IRA into my trust?
No. Retitling a retirement account to a trust counts as a taxable distribution. Instead, name the trust as beneficiary, often as contingent beneficiary after your spouse, so the trust controls the money after your death.
Do assets in a family trust get a step-up in basis when I die?
Yes for a revocable trust: the assets are in your estate and get a stepped-up basis under IRC §1014. Generally no for an irrevocable grantor trust whose assets sit outside your estate, under Rev. Rul. 2023-2. In community property states such as California and Texas, both halves of community property step up at the first spouse's death.
Do I have to file a gift tax return when I put assets into my trust?
No for a revocable trust, because the gift is incomplete. Yes, on Form 709, for gifts to an irrevocable trust above the annual exclusion per beneficiary, or for gifts that are not present interests unless Crummey withdrawal powers are used. No tax is usually owed until lifetime gifts pass the 2027 federal exemption (see the figures table).
What happens to a family trust when the grantor dies?
The trust becomes irrevocable; most families learn when a trust becomes irrevocable only at this point. The successor trustee gets an EIN, values assets at date of death, pays debts and final taxes, files Form 1041 if required, and distributes assets per the trust, all without probate. Some states require notice to beneficiaries, such as California Probate Code §16061.7.
Did the 2025 tax law change whether I need a family trust?
For most families, no. The One Big Beautiful Bill Act made the higher exemption permanent and indexed it for inflation (see the figures table), so the feared 2026 sunset is gone. Trusts remain about probate, privacy, incapacity, Medicaid and state estate tax. If your trust uses formula clauses drafted around the sunset, have them reviewed.
Related reading
- Family Trust vs. Living Trust (w/13 Scenarios)? + FAQs
- Can I Run a Business Through a Family Trust? + FAQs
- 21 Disadvantages of a Family Trust (+Examples)? + FAQs
- What Is a Family Trust? + How to Set One up (w/Examples)? + FAQs
- How to Set Up a Family Trust at a Bank (w/ 7 Examples)? + FAQs
- Can a Grantor Be a Beneficiary of an Revocable Trust? + FAQs