How to Name Your Family Trust Fund
How to name your family trust fund is a common question and one that many investors will someday face. Whether it's putting your own property in a revocable living trust to avoid probate, setting aside real estate for your grandchildren to provide for their living expenses for the rest of their lives, donating appreciated stock to charity with the dividends regularly paid out to support your desired cause, lowering your estate tax, or protecting your children's inheritance from existing or potential creditors through the use of a spendthrift provision, a family trust is one of the most useful tools available.
Sooner or later, if your net worth crosses a certain point, your lawyers, financial planners, or other advisors are going to suggest it (plus, they are great tools for setting up special family holdings). Whether you're naming your first family trust or you're seventh, how do you actually pick a good moniker when you go to establish the trust? The odds are, after all, your heirs or beneficiaries will be living with it for quite some time.
Why Does a Family Trust Need a Name in the First Place?
A trust fund is a distinct, legal entity with its own identity and tax identification number. Like a corporation, it is a legal fiction. It can own assets like a person can. If the trust instrument permits it, it can borrow money like a person can. Just like a person or company needs a name to identify itself, a family trust must have something to put on the title deeds, stock certificates, receipts, accounting records, and the Federal and State tax filings it submits to the government saying, "Hey, this is mine!".
The Most Common Choice When Naming Your Family Trust Fund Is to Use the Family Name Plus Some Date Designation
It sounds almost stupidly simple - and it is, which is the reason so many attorneys and individuals opt for it - but the most common name given to family trusts tends to be some combination of:
- The name of the person establishing the trust fund and/or gifting the property to the trust
- The words "Family Trust."
For example, if John Smith wanted to name a family trust, he might call it the "John Smith Family Trust." It's prosaic, sure, but it leaves no doubt as to what it is.
Some people, especially wealthy families that establish multiple types of trusts with multiple beneficiaries over many decades, have a habit of affixing the year of establishment, too. Case in point: If you saw Donald Trump's financial disclosures in his run for the 2016 Republican nomination for President of the United States, you noticed that when naming his family trust, Donald's father, Frank Trump, opted for:
- The Fred C. Trump December 16, 1976, Trust for the Benefit of Donald J. Tump
- The Fred C. Trump December 16, 1976, Trust for the Benefit of David Desmond
- The Fred C. Trump December 16, 1976, Trust for the Benefit of Robert S. Trump
- The Fred C. Trump December 16, 1976, Trust for the Benefit of Elizabeth J. Trump
- The Fred C. Trump December 16, 1976, Trust for the Benefit of Maryanne T. Barry
- The Fred C. Trump December 16, 1976, Trust for the Benefit of Fred C. Trump III
- The Fred C. Trump December 16, 1976, Trust for the Benefit of Mary Trump
Sometimes, the date isn't technically part of the family trust name but used as an organizational tool. The vast Rockefeller family fortune, by way of illustration, is largely arranged around two primary sets of trusts known as the "1934 trusts", which were those the oil tycoon created for his children, and the "1952" trusts, which his son, John D. Rockefeller, Jr., created for his grandchildren (the fourth generation of Rockefellers). Though by most accounts, the Rockefeller fortune is now held across hundreds of trusts, almost all of the wealth stems from these two collections.
Getting back to the real-world example of Fred Trump, the real estate mogul also created several other family trusts with different naming conventions, including a couple of grantor retained annuity trusts. (A GRAT is an estate planning technique using an irrevocable trust designed to minimize tax liabilities when transferring large amounts of money among multiple generations of a family; specifically, the grantor receives an annuity for a set amount of time while the value of the assets themselves are separated from the main estate, allowing any appreciation on them to escape estate tax limits.
It's a bit more complicated, and it's far beyond the scope of this article about naming family trusts so we'll skip over the details for now.):
- Fred C. Trump, GRAT Trust for the Benefit of Elizabeth Trump Grau
- Maryanne Trump GRAT Trust for the Benefit of Elizabeth Trump Grau
On top of this, at the time of his death, his will created several family trusts (testamentary trusts) where this general naming convention was followed:
- Trust Under Will of Fred C. Trump for the Benefit of Elizabeth Trump Grau
- Trust Under Will of Fred C. Trump for the Benefit of the grandchildren of Fred C. Trump
- Trust Under Will of Maryanne Trump for the Benefit of the grandchildren of Fred C. Trump
Still, other investors opt to name their family trust sequentially. For example, it is not unusual to see:
- The John Smith Family Trust I
- The John Smith Family Trust II
- The John Smith Family Trust III
Some Family Trusts Are Named After the Beneficiary Along with the Purpose
Another common choice when naming a family trust is to name the trust fund after the beneficiary and state the purpose of the money. Imagine your name was Franklin Gardener. You have four children: James, John, Sarah, and Charlotte. You set aside 50% of your estate for them, instructing that 4% of the value will be distributed each Christmas and that the money must be invested in dividend stocks, with the entire trust corpus distributed in full on their 65th birthday. You might name these family trusts:
- The James Gardener Dividend Trust
- The John Gardener Dividend Trust
- The Sarah Gardener Dividend Trust
- The Charlotte Gardener Dividend Trust
You then reserve another 40% for your grandchildren, as a class, whom you want to help attend college. You name this family trust:
- The Franklin Gardener Educational Trust
Finally, you put aside the remaining 10% of your estate for charity. You structure it as a charitable remainder trust meant to benefit wildlife conservation and call it:
- The Smoky Mountain Wildlife Charitable Trust
Consider Naming Your Family Trust Something Anonymous Sounding or Generic, So You Enjoy Added Privacy
One of the problems with the aforementioned approach is the substantial lack of privacy it creates. Imagine you build a nice nest egg over the years, becoming a secret millionaire. You don't want anyone else to know how much money you have or what you own.
When you die, you leave your grandchildren a pile of capital that is used to buy a $2,000,000 apartment building, the rents to be distributed quarterly for their enjoyment; to buy new cars, pay for school, cover their bills, or take vacations. You name the trust after yourself - let's say you have a unique name like Beatrix Adlersflügel - calling it "The Beatrix Adlersflügel Family Trust."
Congratulations, you just opened your family's inheritance to the world's eyes. Anybody can go down to the country recorder and find out the name of the owner on the title deed of the apartment building, as well as the assessed value. Using that information, they can start digging around to see if they can find any other holdings.
Even if you were to use an intermediary - let's say the trust established a limited liability company - unless you were using a legal proxy through your attorney's office or a corporate service, the trust might be listed as the organizer on the paperwork that is available as a matter of public record from the Secretary of State.
If the estate were large enough to warrant the trouble and cost, Beatrix would have been smarter doing something like naming her family trust "Crescent Ridge Capital Trust", then having it establish a Nevada LLC named "20938 Main Street Property, LLC", all of the paperwork signed by an attorney at a branch office in Nevada with no public record of her family's name on any of the documents and the distributions made to an isolated bank account that serves no other purpose than to collect incoming funds.
Done correctly, there is almost no way a person could discover the owner of the apartment building, let alone figure out by reasonable deduction who the beneficiaries were. Assuming, of course, your heirs aren't fools and go running their mouths to everyone about the windfall they received. That way, if they are ever unfortunate enough to be in a serious car accident or do something that results in a creditor trying to go after them, they might be inclined to walk away or settle for less not knowing of the existence of the seven-figure asset.
Of course, none of this is necessary if you are leaving your family $500,000 in blue-chip stocks, index funds, corporate bonds, and MLPs, to be managed by Vanguard's trust division for what amounts to a 1% to 3% fee (the minimum fee, at the time of this writing, is $4,500 for the investment management itself + the look-through fees on the Vanguard funds (e.g., the mutual fund expense ratios) + a $2,500 per trust registration fee for serving as sole or co-trustee, plus any service fees). That might sound like a lot but $7,000 to $15,000 per year, all things considered, for providing all trust services on a portfolio of that size is more than reasonable, especially given the fiduciary risk the firm must take upon itself.
Regardless, it doesn't hurt to opt for a hard-to-trace family trust name. Open the dictionary and scan random pages. Throw darts at a map. Look up historic battles or use a word generator or town name generator online to have it create terms for you. You can even create acronyms if you'd like. Just make it hard to trace so snooping eyes can't figure out what's on your family's balance sheet.